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G.R. No. 16454 September 29, 1921 GEORGE A. KAUFFMAN, plaintiff-appellee, vs. THE PHILIPPINE NATIONAL BANK, defendant-appellant.

STREET, J.: At the time of the transaction which gave rise to this litigation the plaintiff, George A. Kauffman, was the president of a domestic corporation engaged chiefly in the exportation of hemp from the Philippine Islands and known as the Philippine Fiber and Produce Company, of which company the plaintiff apparently held in his own right nearly the entire issue of capital stock. On February 5, 1918, the board of directors of said company, declared a dividend of P100,000 from its surplus earnings for the year 1917, of which the plaintiff was entitled to the sum of P98,000. This amount was accordingly placed to his credit on the books of the company, and so remained until in October of the same year when an unsuccessful effort was made to transmit the whole, or a greater part thereof, to the plaintiff in New York City. In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of the Philippine Fiber and Produce Company, presented himself in the exchange department of the Philippine National Bank in Manila and requested that a telegraphic transfer of $45,000 should be made to the plaintiff in New York City, upon account of the Philippine Fiber and Produce Company. He was informed that the total cost of said transfer, including exchange and cost of message, would be P90,355.50. Accordingly, Wicks, as treasurer of the Philippine Fiber and Produce Company, thereupon drew and delivered a check for that amount on the Philippine National Bank; and the same was accepted by the officer selling the exchange in payment of the transfer in question. As evidence of this transaction a document was made out and delivered to Wicks, which is referred to by the bank's assistant cashier as its official receipt. This memorandum receipt is in the following language: October 9th, 1918. CABLE TRANSFER BOUGHT FROM PHILIPPINE NATIONAL BANK, Manila, P.I. Stamp P18 Foreign $45,000. Amount 3/8 % Rate P90,337.50

In view of these facts, the plaintiff Kauffman instituted the present action in the Court of First Instance of the city of Manila to recover said sum, with interest and costs; and judgment having been there entered favorably to the plaintiff, the defendant appealed. Among additional facts pertinent to the case we note the circumstance that at the time of the transaction above-mentioned, the Philippines Fiber and Produce Company did not have on deposit in the Philippine National Bank money adequate to pay the check for P90,355.50, which was delivered in payment of the telegraphic order; but the company did have credit to that extent, or more, for overdraft in current account, and the check in question was charged as an overdraft against the Philippine Fiber and Produce Company and has remained on the books of the bank as an interest-bearing item in the account of said company. It is furthermore noteworthy that no evidence has been introduced tending to show failure of consideration with respect to the amount paid for said telegraphic order. It is true that in the defendant's answer it is suggested that the failure of the bank to pay over the amount of this remittance to the plaintiff in New York City, pursuant to its agreement, was due to a desire to protect the bank in its relations with the Philippine Fiber and Produce Company, whose credit was secured at the bank by warehouse receipts on Philippine products; and it is alleged that after the exchange in question was sold the bank found that it did not have sufficient to warrant payment of the remittance. In view, however, of the failure of the bank to substantiate these allegations, or to offer any other proof showing failure of consideration, it must be assumed that the obligation of the bank was supported by adequate consideration. In this court the defense is mainly, if not exclusively, based upon the proposition that, inasmuch as the plaintiff Kauffman was not a party to the contract with the bank for the transmission of this credit, no right of action can be vested in him for the breach thereof. "In this situation," we here quote the words of the appellant's brief, "if there exists a cause of action against the defendant, it would not be in favor of the plaintiff who had taken no part at all in the transaction nor had entered into any contract with the plaintiff, but in favor of the Philippine Fiber and Produce Company, the party which contracted in its own name with the defendant." The question thus placed before us is one purely of law; and at the very threshold of the discussion it can be stated that the provisions of the Negotiable Instruments Law can come into operation there must be a document in existence of the character described in section 1 of the Law; and no rights properly speaking arise in respect to said instrument until it is delivered. In the case before us there was an order, it is true, transmitted by the defendant bank to its New York branch, for the payment of a specified sum of money to George A. Kauffman. But this order was not made payable "to order or "to bearer," as required in subsection (d) of that Act; and inasmuch as it never left the possession of the bank, or its representative in New York City, there was no delivery in the sense intended in section 16 of the same Law. In this connection it is unnecessary to point out that the official receipt delivered by the bank to the purchaser of the telegraphic order, and already set out above, cannot itself be viewed in the light of a negotiable instrument, although it affords complete proof of the obligation actually assumed by the bank. Stated in bare simplicity the admitted facts show that the defendant bank for a valuable consideration paid by the Philippine Fiber and Produce Company agreed on October 9, 1918, to cause a sum of money to be paid to the plaintiff in New York City; and the question is whether the plaintiff can maintain an action against the bank for the nonperformance of said undertaking. In other words, is the lack of privity with the contract on the part of the plaintiff fatal to the maintenance of an action by him? The only express provision of law that has been cited as bearing directly on this question is the second paragraph of article 1257 of the Civil Code; and unless the present action can be maintained under the provision, the plaintiff admittedly has no case. This provision states an exception to the more general rule expressed in the first paragraph of the same article to the effect that contracts are productive of effects only between the parties who execute them; and in harmony with this general rule are numerous decisions of this court (Wolfson vs. Estate of Martinez, 20 Phil., 340; Ibaez de Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584; Manila Railroad Co. vs. Compaia Trasatlantica and Atlantic, Gulf and Pacific Co., 38 Phil., 873, 894.) The paragraph introducing the exception which we are now to consider is in these words:

Payable through Philippine National Bank, New York. To G. A. Kauffman, New York. Total P90,355.50. Account of Philippine Fiber and Produce Company. Sold to Messrs. Philippine Fiber and Produce Company, Manila. (Sgd.) Y LERMA, Manager, Foreign Department.

On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the following effect: Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila. Upon receiving this telegraphic message, the bank's representative in New York sent a cable message in reply suggesting the advisability of withholding this money from Kauffman, in view of his reluctance to accept certain bills of the Philippine Fiber and Produce Company. The Philippine National Bank acquiesced in this and on October 11 dispatched to its New York agency another message to withhold the Kauffman payment as suggested. Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman in New York, advising him that $45,000 had been placed to his credit in the New York agency of the Philippine National Bank; and in response to this advice Kauffman presented himself at the office of the Philippine National Bank in New York City on October 15, 1918, and demanded the money. By this time, however, the message from the Philippine National Bank of October 11, directing the withholding of payment had been received in New York, and payment was therefore refused.

Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment, provided he has given notice of his acceptance to the person bound before the stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.) In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation upon the history and interpretation of the paragraph above quoted and so complete is the discussion contained in that opinion that it would be idle for us here to go over the same matter. Suffice it to say that Justice Trent, speaking for the court in that case, sums up its conclusions upon the conditions governing the right of the person for whose benefit a contract is made to maintain an action for the breach thereof in the following words: So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the interest of a third person in a contract is a stipulation pour autrui, or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. If a third person claims an enforcible interest in the contract, the question must be settled by determining whether the contracting parties desired to tender him such an interest. Did they deliberately insert terms in their agreement with the avowed purpose of conferring a favor upon such third person? In resolving this question, of course, the ordinary rules of construction and interpretation of writings must be observed. (Uy Tam and Uy Yet vs. Leonard, supra.) Further on in the same opinion he adds: "In applying this test to a stipulation pour autrui, it matters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promise to the third person. That no such obligation exists may in some degree assist in determining whether the parties intended to benefit a third person, whether they stipulated for him." (Uy Tam and Uy Yet vs. Leonard, supra.) In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough; for it is undeniable that the bank's promise to cause a definite sum of money to be paid to the plaintiff in New York City is a stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances under which that promise was given disclose an evident intention on the part of the contracting parties that the plaintiff should have the money upon demand in New York City. The recognition of this unqualified right in the plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it; and indeed if the provision in question were not applicable to the facts now before us, it would be difficult to conceive of a case arising under it. It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify his acceptance before it has been revoked. In this case the plaintiff clearly signified his acceptance to the bank by demanding payment; and although the Philippine National Bank had already directed its New York agency to withhold payment when this demand was made, the rights of the plaintiff cannot be considered to as there used, must be understood to imply revocation by the mutual consent of the contracting parties, or at least by direction of the party purchasing he exchange. In the course of the argument attention was directed to the case of Legniti vs. Mechanics, etc. Bank (130 N.E. Rep., 597), decided by the Court of Appeals of the State of New York on March 1, 1921, wherein it is held that, by selling a cable transfer of funds on a foreign country in ordinary course, a bank incurs a simple contractual obligation, and cannot be considered as holding the money which was paid for the transfer in the character of a specific trust. Thus, it was said, "Cable transfers, therefore, mean a method of transmitting money by cable wherein the seller engages that he has the balance at the point on which the payment is ordered and that on receipt of the cable directing the transfer his correspondent at such point will make payment to the beneficiary described in the cable. All these transaction are matters of purchase and sale create no trust relationship." As we view it there is nothing in the decision referred to decisive of the question now before us, wish is merely that of the right of the beneficiary to maintain an action against the bank selling the transfer. Upon the considerations already stated, we are of the opinion that the right of action exists, and the judgment must be affirmed. It is so ordered, with costs against the appellant. Interest will be computed as prescribed in section 510 of the Code of Civil Procedure.

Johnson, Araullo, Avancea and Villamor, JJ., concur. G.R. No. 111924 January 27, 1997 ADORACION LUSTAN, petitioner, vs. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK, respondents. FRANCISCO, J.: Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069 of the Cadastral Survey of Calinog, Iloilo containing an area of 10.0057 hectares and covered by TCT No. T-561. On February 25, 1969, petitioner leased the above described property to private respondent Nicolas Parangan for a term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During the period of lease, Parangan was regularly extending loans in small amounts to petitioner to defray her daily expenses and to finance her daughter's education. On July 29, 1970, petitioner executed a Special Power of Attorney in favor of Parangan to secure an agricultural loan from private respondent Philippine National Bank (PNB) with the aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney was executed by petitioner, by virtue of which, Parangan was able to secure four (4) additional loans, to wit: the sums of P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September 6, 1976, July 2, 1979 and June 2, 1980, respectively. The last three loans were without the knowledge of herein petitioner and all the proceeds therefrom were used by Parangan for his own benefit. 1 These encumbrances were duly annotated on the certificate of title. On April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale 2 in favor of Parangan which was superseded by the Deed of Definite Sale 3 dated May 4, 1979 which petitioner signed upon Parangan's representation that the same merely evidences the loans extended by him unto the former. For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded the return of her certificate of title. Instead of complying with the request, Parangan asserted his rights over the property which allegedly had become his by virtue of the aforementioned Deed of Definite Sale. Under said document, petitioner conveyed the subject property and all the improvements thereon unto Parangan absolutely for and in consideration of the sum of Seventy Five Thousand (P75,000.00) Pesos. Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession and damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the lower court rendered judgment, disposing as follows: WHEREFORE and in view of the foregoing, a decision is rendered as follows: 1. Ordering cancellation by the Register of Deeds of the Province of Iloilo, of the unauthorized loans, the liens and encumbrances appearing in the Transfer Certificate of Title No. T-561, especially entries nos. 286231; 338638; and 352794; 2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale dated May 6, 1979, both documents executed by Adoracion Lustan in favor of Nicolas Parangan over Lot 8069 in TCT No. T-561 of the Register of Deeds of Iloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage; 3. Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant PNB using thereto as security TCT No. T-561 of plaintiff and defendant PNB to return TCT No. T-561 to plaintiff; 4. Ordering defendant Nicolas Parangan to return possession of the land in question, Lot 8069 of the Calinog Cadastre, described in TCT No. T-561 of the Register of Deeds of Iloilo, to plaintiff upon payment of the sum of P75,000.00 by plaintiff to defendant Parangan which payment by plaintiff must be made within ninety (90) days from receipt of this decision; otherwise, sale of the land will be ordered by the court to satisfy payment of the amount; 5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of P15,000.00 and to pay the costs of the suit. SO ORDERED. 4

Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision. Hence this petition contending that the CA committed the following errors: IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART. 1602 OF THE NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE; IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS TO THE CONTENTS THEREOF; IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA CABIAL DESERVES FULL FAITH AND CREDIT; IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR "UNLIMITED" LOANS AS RELEVANT. Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality an equitable mortgage and whether or not petitioner's property is liable to PNB for the loans contracted by Parangan by virtue of the special power of attorney. The lower court and the CA arrived at different factual findings thus necessitating a review of the evidence on record. 5 After a thorough examination, we note some errors, both in fact and in law, committed by public respondent CA. The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was shown beyond doubt that the intention of the parties was one of a loan secured by petitioner's land. 6 We agree. A contract is perfected by mere consent. 7 More particularly, a contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. 8 This meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject matter and the consideration thereof. If the words of the contract appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. 9 In the case at bench, the evidence is sufficient to warrant a finding that petitioner and Parangan merely intended to consolidate the former's indebtedness to the latter in a single instrument and to secure the same with the subject property. Even when a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage by raising as an issue the fact that the document does not express the true intent of the parties. In this case, parol evidence then becomes competent and admissible to prove that the instrument was in truth and in fact given merely as a security for the repayment of a loan. And upon proof of the truth of such allegations, the court will enforce the agreement or understanding in consonance with the true intent of the parties at the time of the execution of the contract. 10 Articles 1602 and 1604 of the Civil Code respectively provide: The contract shall be presumed to be an equitable mortgage in any of the following cases: 1) When the price of a sale with right to repurchase is unusually inadequate; 2) When the vendor remains in possession as lessor or otherwise; 3) When upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new period is executed; 4) When the vendor binds himself to pay the taxes on the thing sold; 5) When the purchaser retains for himself a part of the purchase price; 6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, we must first satisfy two requisites namely: that the parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing debt by way of mortgage. Under Art. 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Art. 1602 be present. The existence of any of the circumstances therein, not a concurrence nor an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage. 11 Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable mortgage in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. That the case clearly falls under this category can be inferred from the circumstances surrounding the transaction as herein set forth: Petitioner had no knowledge that the contract 12 she signed is a deed of sale. The contents of the same were not read nor explained to her so that she may intelligibly formulate in her mind the consequences of her conduct and the nature of the rights she was ceding in favor of Parangan. Petitioner is illiterate and her condition constrained her to merely rely on Parangan's assurance that the contract only evidences her indebtedness to the latter. When one of the contracting parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. 13 Settled is the rule that where a party to a contract is illiterate or cannot read or cannot understand the language in which the contract is written, the burden is on the party interested in enforcing the contract to prove that the terms thereof are fully explained to the former in a language understood by him. 14 To our mind, this burden has not been satisfactorily discharged. We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to petitioner worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to great respect and weight for having had the opportunity of observing the conduct and demeanor of the witnesses while testifying. 15 The lower court may not have categorically declared Cabial's testimony as doubtful but this fact is readily apparent when it ruled on the basis of petitioner's evidence in total disregard of the positive testimony on Parangan's side. We have subjected the records to a thorough examination, and a reading of the transcript of stenographic notes would bear out that the court a quo is correct in its assessment. The CA committed a reversible error when it relied on the testimony of Cabial in upholding the validity of the Deed of Definite Sale. For one, there are noted major contradictions between the testimonies of Cabial and Judge Lebaquin, who notarized the purported Deed of Definite Sale. While the former testified that receipts were presented before Judge Lebaquin, who in turn made an accounting to determine the price of the land 16, the latter categorically denied the allegation. 17 This contradiction casts doubt on the credibility of Cabial as it is ostensible that her version of the story is concocted. On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor explained to petitioner. We believe that this witness gave a more accurate account of the circumstances surrounding the transaction. He has no motive to prevaricate or concoct a story as he witnessed the execution of the document at the behest of Parangan himself who, at the outset, informed him that he will witness a document consolidating petitioner's debts. He thus testified: Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of Calinog? A: Yes, sir. Q: Who invited you to go there? A: Parangan. Q: You mean Nicolas Parangan? A: Yes, sir. Q: What did Nicolas tell you why he invited you to go there? A: He told me that I will witness on the indebtedness of Adoracion to Parangan. Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document read to her? A: No, sir.

Q: Did Nicolas Parangan right in that very room tell Adoracion what she was signing? A: No, sir. xxx xxx xxx Q: What did you have in mind when you were signing this document, Exh. "4"? A: To show that Adoracion Lustan has debts with Nicolas Parangan. 18 Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that the deed of sale was read and explained by him to petitioner. When asked if witness has any knowledge whether petitioner knows how to read or write, he answered in the negative. 19 This latter admission impresses upon us that the contract was not at all read or explained to petitioner for had he known that petitioner is illiterate, his assistance would not have been necessary. The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails. The contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in favor of Parangan, did not embody the true intention of the parties. The evidence speaks clearly of the nature of the agreement it was one executed to secure some loans. Anent the issue of whether the outstanding mortgages on the subject property can be enforced against petitioner, we rule in the affirmative. Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property. 20 So long as valid consent was given, the fact that the loans were solely for the benefit of Parangan would not invalidate the mortgage with respect to petitioner's property. In consenting thereto, even granting that petitioner may not be assuming personal liability for the debt, her property shall nevertheless secure and respond for the performance of the principal obligation. 21 It is admitted that petitioner is the owner of the parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed by petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for lack of authority. She totally failed to consider that said Special Powers of Attorney are a continuing one and absent a valid revocation duly furnished to the mortgagee, the same continues to have force and effect as against third persons who had no knowledge of such lack of authority. Article 1921 of the Civil Code provides: Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof. The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter to represent and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to deal with PNB on her behalf and in the absence of any proof that the bank had knowledge that the last three loans were without the express authority of petitioner, it cannot be prejudiced thereby. As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority if such is within the terms of the power of attorney as written even if the agent has in fact exceeded the limits of his authority according to the understanding between the principal and the agent. 22 The Special Power of Attorney particularly provides that the same is good not only for the principal loan but also for subsequent commercial, industrial, agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power of attorney is revoked in a public instrument and a copy of which is furnished to PNB. 23 Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers (Article 1911, Civil Code). 24 The mortgage directly and immediately subjects the property upon which it is imposed. 25 The property of third persons which has been expressly mortgaged to guarantee an obligation to which the said persons are foreign, is directly and jointly liable for the fulfillment thereof; it is therefore subject to execution and sale for the purpose of paying the amount of the debt for which it is liable. 26 However, petitioner has an unquestionable right to demand proportional indemnification from Parangan with respect to the sum paid to PNB from the proceeds of the sale of her property 27 in case the same is sold to satisfy the unpaid debts. WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with the following MODIFICATIONS: 1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE;

2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION OF THE SUBJECT LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS DECISION; 3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY THEREFORE BE SUBJECTED TO EXECUTION SALE. 4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF P15,000.00 BY WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT. SO ORDERED. Narvasa, C.J., Davide, Jr., Melo and Panganiban, JJ., concur. G.R. No. L-7991 January 29, 1914 LEON J. LAMBERT, plaintiff-appellant, vs. T. J. FOX, defendant-appellee. MORELAND, J.: This is an action brought to recover a penalty prescribed on a contract as punishment for the breach thereof. Early in 1911 the firm known as John R. Edgar & Co., engaged in the retail book and stationery business, found itself in such condition financially that its creditors, including the plaintiff and the defendant, together with many others, agreed to take over the business, incorporate it and accept stock therein in payment of their respective credits. This was done, the plaintiff and the defendant becoming the two largest stockholders in the new corporation called John R. Edgar & Co., Incorporated. A few days after the incorporation was completed plaintiff and defendant entered into the following agreement: Whereas the undersigned are, respectively, owners of large amounts of stock in John R. Edgar and Co, Inc; and, Whereas it is recognized that the success of said corporation depends, now and for at least one year next following, in the larger stockholders retaining their respective interests in the business of said corporation: Therefore, the undersigned mutually and reciprocally agree not to sell, transfer, or otherwise dispose of any part of their present holdings of stock in said John R. Edgar & Co. Inc., till after one year from the date hereof. Either party violating this agreement shall pay to the other the sum of one thousand (P1,000) pesos as liquidated damages, unless previous consent in writing to such sale, transfer, or other disposition be obtained. Notwithstanding this contract the defendant Fox on October 19, 1911, sold his stock in the said corporation to E. C. McCullough of the firm of E. C. McCullough & Co. of Manila, a strong competitor of the said John R. Edgar & Co., Inc. This sale was made by the defendant against the protest of the plaintiff and with the warning that he would be held liable under the contract hereinabove set forth and in accordance with its terms. In fact, the defendant Foz offered to sell his shares of stock to the plaintiff for the same sum that McCullough was paying them less P1,000, the penalty specified in the contract. The learned trial court decided the case in favor of the defendant upon the ground that the intention of the parties as it appeared from the contract in question was to the effect that the agreement should be good and continue only until the corporation reached a sound financial basis, and that that event having occurred some time before the expiration of the year mentioned in the contract, the purpose for which the contract was made and had been fulfilled and the defendant accordingly discharged of his obligation thereunder. The complaint was dismissed upon the merits. It is argued here that the court erred in its construction of the contract. We are of the opinion that the contention is sound. The intention of parties to a contract must be determined, in the first instance, from the words of the contract itself. It is to be presumed that persons mean what they say when they speak plain English. Interpretation and construction should by the instruments last resorted to by a court in determining what the parties agreed to. Where the language used by the parties is

plain, then construction and interpretation are unnecessary and, if used, result in making a contract for the parties. (Lizarraga Hermanos vs. Yap Tico, 24 Phil. Rep., 504.) In the case cited the court said with reference to the construction and interpretation of statutes: "As for us, we do not construe or interpret this law. It does not need it. We apply it. By applying the law, we conserve both provisions for the benefit of litigants. The first and fundamental duty of courts, in our judgment, is to apply the law. Construction and interpretation come only after it has been demonstrated that application is impossible or inadequate without them. They are the very last functions which a court should exercise. The majority of the law need no interpretation or construction. They require only application, and if there were more application and less construction, there would be more stability in the law, and more people would know what the law is." What we said in that case is equally applicable to contracts between persons. In the case at bar the parties expressly stipulated that the contract should last one year. No reason is shown for saying that it shall last only nine months. Whatever the object was in specifying the year, it was their agreement that the contract should last a year and it was their judgment and conviction that their purposes would not be subversed in any less time. What reason can give for refusing to follow the plain words of the men who made the contract? We see none. The appellee urges that the plaintiff cannot recover for the reason that he did not prove damages, and cites numerous American authorities to the effect that because stipulations for liquidated damages are generally in excess of actual damages and so work a hardship upon the party in default, courts are strongly inclined to treat all such agreements as imposing a penalty and to allow a recovery for actual damages only. He also cites authorities holding that a penalty, as such, will not be enforced and that the party suing, in spite of the penalty assigned, will be put to his proof to demonstrate the damages actually suffered by reason of defendants wrongful act or omission. In this jurisdiction penalties provided in contracts of this character are enforced . It is the rule that parties who are competent to contract may make such agreements within the limitations of the law and public policy as they desire, and that the courts will enforce them according to their terms. (Civil Code, articles 1152, 1153, 1154, and 1155; Fornow vs. Hoffmeister, 6 Phil. Rep., 33; Palacios vs. Municipality of Cavite, 12 Phil. Rep., 140; Gsell vs. Koch, 16 Phil. Rep., 1.) The only case recognized by the Civil Code in which the court is authorized to intervene for the purpose of reducing a penalty stipulated in the contract is when the principal obligation has been partly or irregularly fulfilled and the court can see that the person demanding the penalty has received the benefit of such or irregular performance. In such case the court is authorized to reduce the penalty to the extent of the benefits received by the party enforcing the penalty. In this jurisdiction, there is no difference between a penalty and liquidated damages, so far as legal results are concerned. Whatever differences exists between them as a matter of language, they are treated the same legally. In either case the party to whom payment is to be made is entitled to recover the sum stipulated without the necessity of proving damages. Indeed one of the primary purposes in fixing a penalty or in liquidating damages, is to avoid such necessity. It is also urged by the appelle in this case that the stipulation in the contract suspending the power to sell the stock referred to therein is an illegal stipulation, is in restraint of trade and, therefore, offends public policy. We do not so regard it. The suspension of the power to sell has a beneficial purpose, results in the protection of the corporation as well as of the individual parties to the contract, and is reasonable as to the length of time of the suspension. We do not here undertake to discuss the limitations to the power to suspend the right of alienation of stock, limiting ourselves to the statement that the suspension in this particular case is legal and valid. The judgment is reversed, the case remanded with instructions to enter a judgment in favor of the plaintiff and against the defendant for P1,000, with interest; without costs in this instance. Arellano, C.J., Trent and Araullo, JJ., concur. November 30, 1908 G.R. No. 1598 JOSE PALACIOS, manager of the Sociedad de Electricidad en Comandita, plaintiff-appellee, vs. THE MUNICIPALITY OF CAVITE, defendant-appellant.

TORRES, J.: In the municipality of Cavite, and on the 11th day of November, 1901, Zacarias Fortich, as municipal president of the said municipality, and Jose Palacios, electrician and managing director of the company known as the Sociedad de Electricidad en Comandita, executed a contract before a notary of the public lighting and the said town and the isthmus by means of electricity, upon the basis, terms, and conditions approved by the said municipality, which are of the following tenor: 1. The Sociedad de Electricidad shall install two hundred incandescent lamps of sixteen candle power in the interior of this walled city of isthmus, at such points and distances as a special representative of the Ayuntamiento may designate in conjunction with the director of said company, and the said lamps shall be suspended from a cable which will be supported along the fronts of the houses at an approximate height of five meters from the ground. 2. The Ayuntamiento shall pay to the Sociedad for the installation of the sum of ten pesos for each incandescent lamp placed on the public street, and six pesos more for each street lamp (farol) as the purchase price of the same; payment to be made in three installments, one upon the signing of this contract, another at the commencement of the electric lighting, and the last thirty days thereafter. 3. Upon completion of the payment for the installation, the incandescent lamps, street lamps, and wires placed in the principal street for the public street lamps, shall become the property of the Ayuntamiento but all other cables, wires, posts, and insulators, shall, as previously, be the property of the Sociedad de Electricidad. 4. The Ayuntamiento shall obtain from the residents and owners the necessary authority for the purpose of supporting, on such houses as may be required, the lamps and wires of public lighting, inasmuch as this service is considered by the law as public utility, and will likewise permit the putting up of the posts in all such public streets where they may be necessary; not tax of any kind shall be imposed thereon, and in the case of damage to the buildings caused by the placing of the electric wires, the Sociedad de Electricidad shall be liable therefor. 5. Every alteration, removal or repair to be made in connection with the public lighting shall be done solely and exclusively by the personnel of the Sociedad de Electricidad and for account of the Ayuntamiento, with the exception of such repairs as may be necessary by reason of the wear and tear which shall be borne by the company. 6. The city lights shall burn from sunset to sunrise, and the Ayuntamiento, shall pay monthly in advance to this company the sum of P3 (three pesos) for each lamp of sixteen candle power, less ten per cent discount when there shall be two hundred lamps of sixteen candle power burning all night, and fifteen per cent discount where there shall be five hundred lamps of equal power. 7. The replacing lamps that may become useless, as well as the cleaning of the same, shall be for account of the Sociedad de Electricidad, and the company in return therefore may be then cease to allow to the Ayuntamiento, the ten per cent bonus stated in the foregoing paragraph. 8. In the event of an involuntary interruption in the lighting, the company shall discount the value of the days during which such interruption may continue, and the Ayuntamiento, shall not claim any further indemnity. 9. In case the Ayuntamiento, fails to settle the bills within thirty days after the presentation thereof, the company shall be entitled to suspend the lighting and to rescind this contract. 10. The duration of this contract shall be two years, which period may be extended for two or more if agreeable to both parties without right to annul the same for any cause except for the lack of payment as provided in the foregoing paragraph, or for legal reasons of force majeure, but in the case of Ayuntamiento, should be without sufficient funds to pay for the lighting, there may be a temporary reduction of from ten to twenty per cent in the number of lights; such reduction not to exceed three months, as otherwise a new contract may be required.

11. And in case of noncompliance with this contract by the Ayuntamiento, before the expiration of the term of two years agreed upon, the Ayuntamiento, shall indemnify the company by assigning to it all the materials used in the installation to the amount of three thousands two hundred pesos paid by the said Ayuntamiento as stated in the foregoing paragraph. 12. If before the expiration of this contract for two years the Sociedad de Electricidad should to fail to comply therewith, the Ayuntamiento shall enjoy the right of preference in the recovery of the indemnity stipulated, in relation to other creditors of the company, and the company binds itself to respect the said lien in the event of transferring its rights to another person or company. 13. In the event of a disagreement between the two parties to this contract by reason thereof, it shall be decided by arbitrators to be appointed by each of the parties, and if the arbitrators fail to reach an agreement they shall appoint a third person to decide. By a written complaint presented by Jose Palacios on the 8th of October, 1902, as representative of the firm of Jose Palacios, Sociedad de Electricidad en Comandita, it was prayed that judgment be entered against the municipality of Cavite ordering the specific performance of the contract by the company; that the company be sentenced to pay monthly 400 pesos, from the 11th of November, 1901, and during the whole period in which the plaintiff shall continue to furnish electric current to the defendant, and to pay also the additional sum of 2,080 pesos, and all such further reimbursement as the court may consider just and equitable with the costs; it was also alleged among other things that, under the agreement and prior to the 1st of February, 1902, the plaintiffs company had acquired 200 lamps, cables, wires, machinery, and the necessary fittings for the installation of the said lamps, as well as the necessary engine to furnish the current for the lighting of the said 200 lamps; that prior to the aforesaid 1st day of February, and after the contract was signed, the plaintiff company installed and furnished lamps to the municipality according to the conditions stipulated in the contract, and was further prepared to supply 130 more lamps of the same description, but that the municipality refused to appoint a representative to designate the location for the said lamps and the supply of the current for the same beyond the 70 lamps already mounted, notwithstanding the fact that the company is and was prepared to install the 200 lamps contracted for sine December, 1901, in such localities within the town as the municipality would designate; that, by virtue of the contract, the plaintiff company constructed a plant with sufficient power, as had been stipulated, for the said number of lamps, and consequently with power in excess of what was required for the 70 lamps put up; that it has been obliged to keep at work the machinery with its excessive power in order to furnish current for the said 70 lamps, thus being subjected to an enormous and useless expense to the extent of 400 pesos a month, to the prejudice of its interests, since the 11th of November, 1901, incurring an additional loss of 2,080 pesos, the value of the remaining 130 lamps at the rate of 16 pesos each, according to agreement, all of which amount constituted an indebtedness which had not been paid, and which the defendant municipality refuses to pay. After the demurrer of the defendant had been overruled, the plaintiff company asked in writing, on the 24th of July, 1903, to be allowed to amend its complaint by the addition of the following: That, in accordance with clause 14 of the contract, the plaintiff had attempted to settle the differences that existed between them by the arbitration, and for such purpose, on its part appointed Leonardo Osorio, inviting the defendant municipality by letter to appoint another person on its behalf, but that the recommendation was not even answered by the defendant. On the 11th of August, following, the representative of the municipality of Cavite answered the complaint, denying in general all the issues of the same and particularly those under paragraphs 6, 7, 8, and 9, and in defense alleged: That, under clause 10 of the contract, the municipality of Cavite reserved the right to reduce the lighting by reason of lack of sufficient funds, giving rise to a fresh contract if more than three months should elapse, with a reduction of the number as agreed to; that, by clause 12, it was stipulated that, as a penalty in case of noncompliance on the part of the municipality, the plaintiff could demand the cession to the company of all the materials used in the installation paid for by the municipality of Cavite, and that the reason for the refusal of said municipality to proceed with the installation of the number of lights agreed upon was the lack of funds to sustain the burden; therefore, it asked that the complaint be dismissed with costs. In view of the result of the proceedings, the court below rendered judgment on the 5th of September, 1903, sentencing the defendant to pay to the plaintiff the sum of 2,132 pesos, the amount of the two installments unpaid by the defendant municipality, and that the latter deliver to the plaintiff the materials for the installations, and declared the contract rescinded, with the costs against the defendant. The representative of the municipality, upon being informed of the above judgment,

moved for a new trial; the motion was overruled, to which the petitioner excepted, and, in opposition to this decision and to the judgment, the corresponding bill of exceptions was presented. As may be seen from the complaint, the claim of the plaintiff is based on the failure to comply with the contract hereinbefore inserted, and the municipalitys answer rests principally on the lack of funds to meet the total cost of the lights, and for this reason refused to permit the installation of the greater part of the lamps for the lighting of the city of Cavite. It is an unquestionable fact that the municipality of Cavite, by objecting to the installation of 130 lamps for the lighting of the city, the balance of the 200 lamps agreed upon, violated the contract above referred to; the lack of funds was no excuse for the failure to comply with the agreement; therefore, it has incurred the penalty prescribed by clause 12 of said contract, in accordance with the provisions of article 1152 of the Civil Code which provides that In obligations with a penal clause the penalty shall substitute indemnity for damages and the payment of interest in case of non-fulfillment, should there be no agreement to the contrary. xxx xxx xxx In view of the fact that the representative of the municipality of Cavite has admitted that, with the exception of the 70 lamps, he did not permit the installation of the 130 lamps, the remainder of the 200 agreed upon, the non-fulfillment of the contract is apparent and undeniable, and the contractor for the service, the plaintiff herein, is clearly relieved from having to prove that the said municipality violated the contract in order to be entitled to demand the enforcement of the penal clause therein agreed upon, which, in the present case, rather than a guaranty and a penalty for a violation of the agreement, is the means of reparation allowed by law for loss and damages. Moreover, neither is the plaintiff obliged to prove that he was subjected to losses and damages and the extent thereof, inasmuch as the contracting parties, in order to avoid controversy, the necessity of adducing evidence, and other difficulties involved in litigations, agreed to appeal clause as a proviso to the main contract, and established an exception to the ordinary and general clause of indemnity for losses and damages in performance of the right granted by article 1255 of the Civil Code. There can be no doubt that, in lieu of the said general clause covering indemnity for losses and damages, the contending parties agreed to substitute the penalty agreed upon in place of the indemnity for losses and damages prescribed by article 1152 inserted above, without having stipulated by other obligation. By this statement of facts, it is shown that the first error assigned to the judgment appealed from inadmissible. With regard to the second error assigned to the judgment, the terms of the clauses 11 and 12 of the contract entered into between the plaintiff company and the municipality of Cavite, sustain the opinion of the trial judge in considering that the stoppage of the installation of the remaining 130 lamps is one of the cases of violation of the contract as defined in clause 12, because the general terms employed therein, and in clause 11, prove beyond all doubt that the non-fulfillment stipulated refers to everything that has been set forth and to all the matters agreed upon. If the appellants affir mation that the said clause 12 refers solely to the default in the monthly payment for the lighting of the city were true, it would have been clearly so stated. The words in cases of non-fulfillment of the contract by either the company or by the Ayuntamiento were inserted because it was the intent and purpose of the contracting parties to refer to the whole contract or to any of its clauses or conditions. Article 1281 of the Civil Code prescribes that If the terms of a contract are clear and leave no doubt as to the intentions of the contracting parties, the literal sense of its stipulations shall be observed. If the words should appear contrary to the evident intention of the contracting parties, the intention shall prevail. According to the terms of the foregoing article, as the provisions of the said contract are clear and leave no doubt as to the intention of the contracting parties, the literal sense of its clause must prevail, especially when the words contained in two clauses above referred to are not opposed to the evident intention of the contracting parties. As the plaintiff has made no appeal with respect to his other claims, which were omitted in the judgment of the court below, the same can not now be considered.

For the reasons hereinbefore set forth, it is our opinion that the judgment appealed from should be affirmed with costs, provided that the municipality of Cavite shall deliver to the plaintiff all the materials for the lighting of the city installed by the contractor. So ordered. Johnson, Carson, and Willard, JJ., concur. Mapa and Tracey, JJ., dissent. G.R. No. L-25931 October 30, 1978 ROBERTO LABASAN, AVELINO LABASAN, JOSEFINA LABASAN, and MARCELA COLOMA, petitioners, vs. ADELA LACUESTA, DOMINGA LACUESTA and NORBERTO LACUESTA, respondents. MUOZ PALMA, J.: Is the contract entered into between spouses Clemente and Hermenigilda Lacuesta on one hand and spouses Gelacio and Marcela Labasan on the other a pacto de retro sale or an equitable mortgage? This is the lone question involved in this litigation. Sometime in 1927, spouses Lacuesta were the owners of an unregistered, irrigated riceland located in the municipality of Badoc, province of Ilocos Norte, and declared for taxation purposes under Tax Declaration No. 026181 in the name of Hermenigilda Lacuesta. 1 On April 20, 1927, the spouses executed in favor of spouses Labasan a document written in the Ilocano dialect the English translation of which marked as Exhibit "1-A" follows: We, the spouses, Clemente Lacuesta and Hermenigilda Lacuesta, both of legal age, are residents of barrio Salapasap No. 16, Badoc, Ilocos Norte. We declare the truth that in view of our urgent necessity for money, we thought of selling one parcel of land owned by us situated in Sitio Mabusay No. 18 within the jurisdiction of said municipality, to the spouses Gelacio Labasan and Marcela Coloma, residents of barrio Puzo of the municipality of Pinili, Ilocos Norte, for the amount of TWO HUNDRED TWENTY-FIVE (P225.00) pesos, Philippine Currency, which we have already received in lump sum. The sale of this parcel of land owned by us to the said spouses can be reconveyed provided ten years shall not have elapsed and we have the same amount of the money which we had taken from them, as agreed upon by us . This parcel of land has a circumference of 240 square meters, yielding two 'uyones' and three baares of palay. Bounded on the north by Fernando Lacuesta and Vicente Coloma; on the east by Matias Coloma, on the south by Valeriana Lacuesta and on the west by Fernando Lacuesta. We further agreed that during the period of their ownership of this parcel of land, I will be responsible for all tenancy matters over this land. For this reason this receipt is made as security to the spouses for all matters pertaining thereto. But in case there shall arise adverse claims with respect to the ownership of the vendees over this parcel of land I and my wife shall answer the same as well as defray all expenses of litigation an if we shall be adjudged otherwise, and, if the vendees of this parcel of land shall be deprived of their ownership, we shall give another parcel of land with the same yield and area so that our sacred agreement shall not be beclouded with bad faith. In witness to the truth of what we have done, we sign our names for those who know how to write and affix the cross for those who do not know how to write, together with the signatures of the witnesses. Done this 20th of April, 1927. (pp. 8-10, Petitioner's brief) On April 23, 1948 spouses Lacuesta filed with the Court of First Instance of Ilocos Norte a complaint against spouses Labasan, seeking the reconveyance of the parcel of land subject of the above-quoted document. During the pendency of the case, the Lacuesta died and were substituted by their children, all surnamed Lacuesta. In the meantime, defendant Gleacio Labasan also died and was substituted by his children.

In the complaint, it was alleged that spouses Lacuesta secured a loan P225.00 from Gelacio Labasan and as security for the payment of that loan, they offered their riceland; sometime in 1943, they tendered payment of the loan but Labasan refused to accept it; after "liberation" they offered again to pay their loan and demanded the return of their land but they were once more refused because defendants claimed that they were the owners of the property. 1-A In the answer to the complaint only one special defense was raised that the Lacuesta conveyed by means of a written document the land with right to repurchase the same within the period of ten years, but because of plaintiff's failure to exercise that right within the stipulated period, the vendees a retro have became the absolute owners of the land and the latter in fact donated the property to their son Roberto Labasan who is now the owner of the property. 2 On the basis of the evidence adduced by the parties the trial court presided then by Judge Wenceslao M. Ortega rendered on May 11, 1959 a decision declaring that the document executed by the Lecuestas was a pacto de retro sale and that the latter lost their right to redeem the land for not having taken any step within the agreed of ten years. 3 The plaintiffs elevated the case to the Court of Appeals on the sole issue of the nature of the document marked Exhibit "1-A". The Court of Appeals, in its decision of February 18, 1966, set aside the judgment of the trial court and declared the contract an equitable mortgage and ordered the defendants Labasan to reconvey the land to the Lacuestas without the latter paying the loan of P225.00 inasmuch as the same was deemed paid from the fruits of the property which the Labasans had been receiving for the past thirty-two years. 4 We affirm the decision of the appellate court under well-settled principles embodied in the law and existing jurisprudence. 1. It is a basic fundamental rule in the interpretation of a contract that if the terms thereof are clear and leave no doubt upon the intention of the contracting parties the literal meaning of the stipulation shall control, 5 but when the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. 6 Examining Exhibit "1-A" in this case, it is evident that the terms of the document are not clear and explicit on the real intent of the parties when they executed the aforesaid document. For instance, the words or clauses, vis: "urgent necessity for money," "selling the land," ownership," I will be responsible for all tenancy matters," "This receipt is made as security," are sufficient to create a doubt as to what the document truly purports to be. Under those terms is the contract one of loan with security or a pacto de retro sale? 2. In view of the ambiguity caused by conflicting terminologies in the document, it becomes necessary to inquire into the reason behind the transaction and other circumstances accompanying it so as to determine the true intent of the parties. Once the intent becomes clear then it shall be made to prevail over what on its face the document appears to be. Each case is to be resolved on the basis of the circumstances attending the transaction. Article 1371, New Civil Code: In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. (same as Art. 1282, Old Civil Code) In the case at bar, the collective weight of the following considerations lead Us to agree with the findings and conclusion of the appellate court that Exhibit "1-A" is a mere loan with security and not a pacto de retro sale. First, the reason behind the execution of Exhibit "1-A" was that the Lacuestas were in "urgent necessity for money" and had to secure a loan of P225.00 from Gelacio Labasan for which the riceland was given as "security". In Jayme, et al. v. Salvador, et al., 1930, this Court upheld a judgment of the Court of First Instance of Iloilo which found the transaction between the parties to be a loan instead of a sale of real property notwithstanding the terminology used in the document, after taking into account the surrounding circumstances of the transaction. The Court through Justice Norberto Romualdez stated that while it was true that plaintiffs were aware of the contents of the contracts, the preponderance of the evidence showed however that they signed knowing that said contracts did not express their real intention, and if they did so notwithstanding this, it was due to the urgent necessity of obtaining funds. 7 "Necessitous men are not, truly speaking, free men; but to answer a present emergency, will submit to any terms that the crafty may impose upon them." 8

Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur. Second, the amount of P225.00, even in 1927, was too inadequate for a purchase price of an irrigated riceland with an alleged "perimeter" of 240 meters and an "area of 1,269 square meters" yielding annually one "uyon" and five "baares" of palay, 9 the land being valued at the time for no less than P1,000.00. 9-A In Quinga v. Court of Appeals, et al., 1961, although the contract between the parties upon its face was one of sale, nevertheless, this Court upheld the findings of the Court of Appeals that the transaction was not a sale but a loan secured by an equitable mortgage under the prevailing circumstances of the case, such as, that the price of the land was grossly inadequate and the vendor remained in possession of the land and enjoyed the fruits. 10 In fact, Article 1602 paragraph 1 of the New Civil Code expressly provides that in case of doubt a contract purporting to be a sale with a right to repurchase shall be construed as an equitable mortgage when the price or consideration of the sale is unusually inadequate. Third, although symbolically the possession of the property was transferred to Gelacio Labasan, it was Lacuesta, the supposed vendor, who continued to be in physical possession of the property, took charge of its cultivation, and all tenancy matters. The second paragraph of Article 1602 of the New Civil Code provides that when the vendor remains in possession as lessee or otherwise, the contract shall be construed as an equitable mortgage. Fourth, Gelacio Labasan, the supposed vendee a retro never declared the property in his name for taxation purposes nor did he pay the taxes thereon since the execution of the document in 1927. Roberto Labasan, now one of the petitioners and who claims to have acquired the property from his father Gelacio by way of donation, declared the property in his name under Tax Declaration No. 55683-C-1 only sometime in 1944. (p. 13, Respondents' brief; see also CFI decision, p. 18, Record on Appeal) In Santos v. Duata, this Court, in affirming a decision of the Court of Appeals, considered the facts that the vendor remained in possession of the land and continued paying the taxes thereon significant circumstances which justified a judgment holding the transaction between the parties as an equitable mortgage and not a pacto de retro sale, thereby applying Article 1602 of the New Civil Code which the Court held to be a remedial measure which may be applied retroactively to cases arising prior to the effectivity of the New Civil Code. 11 Fifth, as noted in the decision of the appellate court, the supposed vendees a retro, now the herein petitioners, failed to take any step since 1927 to consolidate their alleged ownership over the land. Under Article 1509 of the Old or Spanish Civil Code, if the vendor failed to redeem within the period agreed upon, the vendee's title became irrevocable by the mere registration of an affidavit of consolidation. Thus, under the old law, a judicial order was not necessary as is required now under Article 1607 of the New Civil Code. The failure of Gelacio Labasan or his heirs to carry out that act of consolidation strongly corroborates the claim of Lacuesta that there was no intent at all on the part of the parties to transfer ownership of the riceland in question. 3. Finally, We have the rule that in case of any doubt concerning the surrounding circumstances in the execution of a contract, the least transmission of rights and interests shall prevail if the contract is gratuitous, and, if onerous the doubt is to be settled in favor of the greatest reciprocity of interest. 12 Thus, in the early case of Olino v. Medina 1909, Olino filed a complaint against Medina to recover a parcel of riceland which he alleged to have mortgaged for P175.00 and which Medina refused to return on the ground that the latter allegedly bought the property. In deciding the conflict of allegations between the parties, this Court, through Justice Florentino Torres, considered the transaction over the property as a loan, reasoning that "such a contract involves a smaller transmission of rights and interests, and the debtor does not surrender all rights to his property but simply confers upon the creditor the right to collect what is owing from the value of the thing given as security, there existing between the parties a greater reciprocity of rights and obligations. 13 With the foregoing considerations, there is no further necessity for Us to dwell on the other reasons given by the Court of Appeals in rendering judgment in favor of private respondents, which reasons We believe are not decisive of the issue posed in this case. PREMISES CONSIDERED, We find no reversible error in the petition under review and We affirm the same. With costs against petitioners. So ordered. G.R. No. L-53955 January 13, 1989 THE MANILA BANKING CORPORATION, plaintiff-appellee, vs. ANASTACIO TEODORO, JR. and GRACE ANNA TEODORO, defendants-appellants. BIDIN, J.: This is an appeal from the decision* of the Court of First Instance of Manila, Branch XVII in Civil Case No. 78178 for collection of sum of money based on promissory notes executed by the defendants-appellants in favor of plaintiff-appellee bank. The dispositive portion of the appealed decision (Record on Appeal, p. 33) reads as follows: WHEREFORE judgment is hereby rendered (a) sentencing defendants, Anastacio Teodoro, Jr. and Grace Anna Teodoro jointly and severally, to pay plaintiff the sum of P15,037.11 plus 12% interest per annum from September 30, 1969 until fully paid, in payment of Promissory Notes No. 11487, plus the sum of P1,000.00 as attorney's fees; and (b) sentencing defendant Anastacio Teodoro, Jr. to pay plaintiff the sum of P8,934.74, plus interest at 12% per annum from September 30, 1969 until fully paid, in payment of Promissory Notes Nos. 11515 and 11699, plus the sum of P500.00 an attorney's fees. With Costs against defendants. The facts of the case as found by the trial court are as follows: On April 25, 1966, defendants, together with Anastacio Teodoro, Sr., jointly and severally, executed in favor of plaintiff a Promissory Note (No. 11487) for the sum of P10,420.00 payable in 120 days, or on August 25, 1966, at 12% interest per annum. Defendants failed to pay the said amount inspire of repeated demands and the obligation as of September 30, 1969 stood at P 15,137.11 including accrued interest and service charge. On May 3, 1966 and June 20, 1966, defendants Anastacio Teodoro, Sr. (Father) and Anastacio Teodoro, Jr. (Son) executed in favor of plaintiff two Promissory Notes (Nos. 11515 and 11699) for P8,000.00 and P1,000.00 respectively, payable in 120 days at 12% interest per annum. Father and Son made a partial payment on the May 3, 1966 promissory Note but none on the June 20, 1966 Promissory Note, leaving still an unpaid balance of P8,934.74 as of September 30, 1969 including accrued interest and service charge. The three Promissory Notes stipulated that any interest due if not paid at the end of every month shall be added to the total amount then due, the whole amount to bear interest at the rate of 12% per annum until fully paid; and in case of collection through an attorney-at-law, the makers shall, jointly and severally, pay 10% of the amount over-due as attorney's fees, which in no case shall be leas than P200.00. It appears that on January 24, 1964, the Son executed in favor of plaintiff a Deed of Assignment of Receivables from the Emergency Employment Administration in the sum of P44,635.00. The Deed of Assignment provided that it was for and in consideration of certain credits, loans, overdrafts and other credit accommodations extended to defendants as security for the payment of said sum and the interest thereon, and that defendants do hereby remise, release and quitclaim all its rights, title, and interest in and to the accounts receivables. Further. (1) The title and right of possession to said accounts receivable is to remain in the assignee, and it shall have the right to collect the same from the debtor, and whatsoever the Assignor does in connection with the collection of said accounts, it agrees to do as agent and representative of the Assignee and in trust for said Assignee ; xxx xxx xxx (6) The Assignor guarantees the existence and legality of said accounts receivable, and the due and punctual payment thereof unto the assignee, ... on demand, ... and further, that Assignor warrants the solvency and credit worthiness of each and every account.

(7) The Assignor does hereby guarantee the payment when due on all sums payable under the contracts giving rise to the accounts receivable ... including reasonable attorney's fees in enforcing any rights against the debtors of the assigned accounts receivable and will pay upon demand, the entire unpaid balance of said contract in the event of non-payment by the said debtors of any monthly sum at its due date or of any other default by said debtors; xxx xxx xxx (9) ... This Assignment shall also stand as a continuing guarantee for any and all whatsoever there is or in the future there will be justly owing from the Assignor to the Assignee ... In their stipulations of Fact, it is admitted by the parties that plaintiff extended loans to defendants on the basis and by reason of certain contracts entered into by the defunct Emergency Employment Administration (EEA) with defendants for the fabrication of fishing boats, and that the Philippine Fisheries Commission succeeded the EEA after its abolition; that nonpayment of the notes was due to the failure of the Commission to pay defendants after the latter had complied with their contractual obligations; and that the President of plaintiff Bank took steps to collect from the Commission, but no collection was effected. For failure of defendants to pay the sums due on the Promissory Note, this action was instituted on November 13, 1969, originally against the Father, Son, and the latter's wife. Because the Father died, however, during the pendency of the suit, the case as against him was dismiss under the provisions of Section 21, Rule 3 of the Rules of Court. The action, then is against defendants Son and his wife for the collection of the sum of P 15,037.11 on Promissory Note No. 14487; and against defendant Son for the recovery of P 8,394.7.4 on Promissory Notes Nos. 11515 and 11699, plus interest on both amounts at 12% per annum from September 30, 1969 until fully paid, and 10% of the amounts due as attorney's fees. Neither of the parties presented any testimonial evidence and submitted the case for decision based on their Stipulations of Fact and on then, documentary evidence. The issues, as defined by the parties are: (1) whether or not plaintiff claim is already considered paid by the Deed of Assign. judgment of Receivables by the Son; and (2) whether or not it is plaintiff who should directly sue the Philippine Fisheries Commission for collection.' (Record on Appeal, p. 29- 32). On April 17, 1972, the trial court rendered its judgment adverse to defendants. On June 8, 1972, defendants filed a motion for reconsideration (Record on Appeal, p. 33) which was denied by the trial court in its order of June 14, 1972 (Record on Appeal, p. 37). On June 23, 1972, defendants filed with the lower court their notice of appeal together with the appeal bond (Record on Appeal, p. 38). The record of appeal was forwarded to the Court of Appeals on August 22, 1972 (Record on Appeal, p. 42). In their appeal (Brief for the Appellants, Rollo, p. 12), appellants raised a single assignment of error, that is THAT THE DECISION IN QUESTION AMOUNTS TO A JUDICIAL REMAKING OF THE CONTRACT BETWEEN THE PARTIES, IN VIOLATION OF LAW; HENCE, TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION. As the appeal involves a pure question of law, the Court of Appeals, in its resolution promulgated on March 6, 1980, certified the case to this Court (Rollo, p. 24). The record on Appeal was forwarded to this Court on March 31, 1980 (Rollo, p. 1). In the resolution of May 30, 1980, the First Division of this Court ordered that the case be docketed and declared submitted for decision (Rollo, p. 33). On March 7, 1988, considering the length of time that the case has been pending with the Court and to determine whether supervening events may have rendered the case moot and academic, the Court resolved (1) to require the parties to MOVE IN THE PREMISES within thirty days from notice, and in case they fail to make the proper manifestation within the required period, (2) to consider the case terminated and closed with the entry of judgment accordingly made thereon (Rollo, p. 40). On April 27, 1988, appellee moved for a resolution of the appeal review interposed by defendants-appellants (Rollo, p. 41).

The major issues raised in this case are as follows: (1) whether or not the assignment of receivables has the effect of payment of all the loans contracted by appellants from appellee bank; and (2) whether or not appellee bank must first exhaust all legal remedies against the Philippine Fisheries Commission before it can proceed against appellants for collections of loan under the promissory notes which are plaintiffs bases in the action for collection in Civil Case No. 78178. Assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the need of the consent of the debtor, transfers his credit and its accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could have enforced it against the debtor. ... It may be in the form of a sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a third person, or it may constitute a donation as when it is by gratuitous title; or it may even be merely by way of guaranty, as when the creditor gives as a collateral, to secure his own debt in favor of the assignee, without transmitting ownership. The character that it may assume determines its requisites and effects. its regulation, and the capacity of the parties to execute it; and in every case, the obligations between assignor and assignee will depend upon the judicial relation which is the basis of the assignment: (Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. 5, pp. 165-166). There is no question as to the validity of the assignment of receivables executed by appellants in favor of appellee bank. The issue is with regard to its legal effects. I. It is evident that the assignment of receivables executed by appellants on January 24, 1964 did not transfer the ownership of the receivables to appellee bank and release appellants from their loans with the bank incurred under promissory notes Nos. 11487,11515 and 11699. The Deed of Assignment provided that it was for and in consideration of certain credits, loans, overdrafts, and their credit accommodations in the sum of P10,000.00 extended to appellants by appellee bank, and as security for the payment of said sum and the interest thereon; that appellants as assignors, remise, release, and quitclaim to assignee bank all their rights, title and interest in and to the accounts receivable assigned (lst paragraph). It was further stipulated that the assignment will also stand as a continuing guaranty for future loans of appellants to appellee bank and correspondingly the assignment shall also extend to all the accounts receivable; appellants shall also obtain in the future, until the consideration on the loans secured by appellants from appellee bank shall have been fully paid by them (No. 9). The position of appellants, however, is that the deed of assignment is a quitclaim in consideration of their indebtedness to appellee bank, not mere guaranty, in view of the following provisions of the deed of assignment: ... the Assignor do hereby remise, release and quit-claim unto said assignee all its rights, title and interest in the accounts receivable described hereunder. (Emphasis supplied by appellants, first par., Deed of Assignment). ... that the title and right of possession to said account receivable is to remain in said assignee and it shall have the right to collect directly from the debtor, and whatever the Assignor does in connection with the collection of said accounts, it agrees to do so as agent and representative of the Assignee and it trust for said Assignee ...(Ibid. par. 2 of Deed of Assignment).' (Record on Appeal, p. 27) The character of the transactions between the parties is not, however, determined by the language used in the document but by their intention. Thus, the Court, quoting from the American Jurisprudence (68 2d, Secured Transaction, Section 50) said: The characters of the transaction between the parties is to be determined by their intention, regardless of what language was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a pledge. However, even though a transfer, if regarded by itself, appellate to have been absolute, its object and character might still be qualified and explained by a contemporaneous writing declaring it to have been a deposit of the property as collateral security. It has been Id that a transfer of property by the debtor to a creditor, even if sufficient on its farm to make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not discharged by the transfer, and that accordingly, the use of the terms ordinarily exporting conveyance, of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of

absolute ownership, in the absence of clear and ambiguous language or other circumstances excluding an intent to pledge. (Lopez v. Court of Appeals, 114 SCRA 671 [1982]). Definitely, the assignment of the receivables did not result from a sale transaction. It cannot be said to have been constituted by virtue of a dation in payment for appellants' loans with the bank evidenced by promissory note Nos. 11487, 11515 and 11699 which are the subject of the suit for collection in Civil Case No. 78178. At the time the deed of assignment was executed, said loans were non-existent yet. The deed of assignment was executed on January 24, 1964 (Exh. "G"), while promissory note No. 11487 is dated April 25, 1966 (Exh. 'A), promissory note 11515, dated May 3, 1966 (Exh. 'B'), promissory note 11699, on June 20, 1966 (Exh. "C"). At most, it was a dation in payment for P10,000.00, the amount of credit from appellee bank indicated in the deed of assignment. At the time the assignment was executed, there was no obligation to be extinguished except the amount of P10,000.00. Moreover, in order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other (Article 1292, New Civil Code). Obviously, the deed of assignment was intended as collateral security for the bank loans of appellants, as a continuing guaranty for whatever sums would be owing by defendants to plaintiff, as stated in stipulation No. 9 of the deed. In case of doubt as to whether a transaction is a pledge or a dation in payment, the presumption is in favor of pledge, the latter being the lesser transmission of rights and interests (Lopez v. Court of Appeals, supra). In one case, the assignments of rights, title and interest of the defendant in the contracts of lease of two buildings as well as her rights, title and interest in the land on which the buildings were constructed to secure an overdraft from a bank amounting to P110,000.00 which was increased to P150,000.00, then to P165,000.00 was considered by the Court to be documents of mortgage contracts inasmuch as they were executed to guarantee the principal obligations of the defendant consisting of the overdrafts or the indebtedness resulting therefrom. The Court ruled that an assignment to guarantee an obligation is in effect a mortgage and not an absolute conveyance of title which confers ownership on the assignee (People's Bank & Trust Co. v. Odom, 64 Phil. 126 [1937]). II. As to whether or not appellee bank must have to exhaust all legal remedies against the Philippine Fisheries Commission before it can proceed against appellants for collection of loans under their promissory notes, must also be answered in the negative. The obligation of appellants under the promissory notes not having been released by the assignment of receivables, appellants remain as the principal debtors of appellee bank rather than mere guarantors. The deed of assignment merely guarantees said obligations. That the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor, under Article 2058 of the New Civil Code does not therefore apply to them. It is of course of the essence of a contract of pledge or mortgage that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor (Article 2087, New Civil Code). In the instant case, appellants are both the principal debtors and the pledgors or mortgagors. Resort to one is, therefore, resort to the other. Appellee bank did try to collect on the pledged receivables. As the Emergency Employment Agency (EEA) which issued the receivables had been abolished, the collection had to be coursed through the Office of the President which disapproved the same (Record on Appeal, p. 16). The receivable became virtually worthless leaving appellants' loans from appellee bank unsecured. It is but proper that after their repeated demands made on appellants for the settlement of their obligations, appellee bank should proceed against appellants. It would be an exercise in futility to proceed against a defunct office for the collection of the receivables pledged. WHEREFORE, the appeal is Dismissed for lack of merit and the appealed decision of the trial court is affirmed in toto. SO ORDERED. Fernan, C.J., Gutierrez, Jr. and Cortes, JJ., concur. G.R. No. L-33157 June 29, 1982

BENITO H. LOPEZ, petitioner, vs. THE COURT OF APPEALS and THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., respondents. GUERRERO, J.: On June 2, 1959, petitioner Benito H. Lopez obtained a loan in the amount of P20,000.00 from the Prudential Bank and Trust Company. On the same date, he executed a promissory note for the same amount, in favor of the said Bank, binding himself to repay the said sum one (1) year after the said date, with interest at the rate of 10% per annum. In addition to said promissory note, he executed Surety Bond No. 14164 in which he, as principal, and Philippine American General Insurance Co., Inc. (PHILAMGEN) as surety, bound themselves jointly and severally in favor of Prudential Bank for the payment of the sum of P20,000.00. On the same occasion, Lopez also executed in favor of Philamgen an indemnity agreement whereby he agreed "to indemnify the Company and keep it indemnified and hold the same harmless from and against any and all damages, losses, costs, stamps, taxes, penalties, charges and expenses of whatever kind and nature which the Company shall or may at any time sustain or incur in consequence of having become surety upon the bond." 1 At the same time, Lopez executed a deed of assignment of 4,000 shares of the Baguio Military Institution entitled "Stock Assignment Separate from Certificate", which reads: This deed of assignment executed by BENITO H. LOPEZ, Filipino, of legal age, married and with residence and postal address at Baguio City, Philippines, now and hereinafter called the "ASSIGNOR", in favor of the PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal offices at Wilson Building, Juan Luna, Manila, Philippines, now and hereinafter called the "ASSIGNEE-SURETY COMPANY" WITNESSETH That for and in consideration of the obligations undertaken by the ASSIGNEE-SURETY COMPANY under the terms and conditions of SURETY BOND NO. 14164, issued on behalf of said BENITO H. LOPEZ and in favor of the PRUDENTIAL BANK & TRUST COMPANY, Manila, Philippines, in the amount of TWENTY THOUSAND PESOS ONLY (P20,000.00), Philippine Currency, and for value received, the ASSIGNOR hereby sells, assigns, and transfers unto THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Four Thousand (4,000) shares of the Baguio military Institute, Inc. standing in the name of said Assignor on the books of said Baguio Military Institute, Inc. represented by Certificate No. 44 herewith and do hereby irrevocably constitutes and appoints THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. as attorney to transfer the said stock on the books of the within named military institute with full power of substitution in the premises. 2 With the execution of this deed of assignment, Lopez endorsed the stock certificate and delivered it to Philamgen. It appears from the evidence on record that the loan of P20,000.00 was approved conditioned upon the posting of a surety bond of a bonding company acceptable to the bank. Thus, Lopez persuaded Emilio Abello, Assistant Executive VicePresident of Philamgen and member of the Bond Under writing Committee to request Atty. Timoteo J. Sumawang, Assistant Vice- President and Manager of the Bonding Department, to accommodate him in putting up the bond against the security of his shares of stock with the Baguio Military Institute, Inc. It was their understanding that if he could not pay the loan, VicePresident Abello and Pio Pedrosa of the Prudential Bank would buy the shares of stocks and out of the proceeds thereof, the loan would be paid to the Prudential Bank. On June 2, 1960, Lopez' obligation matured without it being settled. Thus, the Prudential Bank made demands for payment both upon Lopez and Philamgen. In turn, Philamgen sent Lopez several written demands for the latter to pay his note (Exhibit H, H-1 & H-2), but Lopez did not comply with said demands. Hence, the Prudential Bank sometime in August, 1961 filed a case against them to enforce payment on the promissory note plus interest. Upon receipt of the copies of complaint, Atty. Sumawang confronted Emilio Abello and Pio Pedrosa regarding their commitment to buy the shares of stock of Lopez in the event that the latter failed to pay his obligations to the Prudential Bank. Vice-President Abello then instructed Atty. Sumawang to transfer the shares of stock to Philamgen and made a commitment

that thereafter he (Abello) and Pio Pedrosa will buy the shares of stock from it so that the proceeds could be paid to the bank, and in the meantime Philamgen will not pay the bank because it did not want payment under the terms of the bank. 3 Due to said commitment and instruction of Vice-President Abello, Assistant Treasurer Marcial C. Cruz requested the transfer of Stock Certificate No. 44 for 4,000 shares to Philamgen in a letter dated October 31, 1961. Stock Certificate No. 44 in the name of Lopez was accordingly cancelled and in lieu thereof Stock Certificate No. 171 was issued by the Baguio Military Institute in the name of Philamgen on November 17, 1961. The complaint was thereafter dismissed. But when no payment was still made by the principal debtor or by the surety, the Prudential Bank filed on November 8, 1963 another complaint for the recovery of the P20,000.00. On November 18, 1963, after being informed of said complaint, Lopez addressed the following letter to Philamgen: Dear Mr. Sumawang: This is with reference to yours of the 13th instant advising me of a complaint filed against us by Prudential Bank & Trust Co. regarding my loan of P20,000.00. In this connection, I would like to know what happened to my shares of stocks of Baguio Military Academy which were pledged to your goodselves to secure said obligation. These shares of stock I think are more than enough to answer for said obligation. 4 On December 9, 1963, Philamgen was forced to pay the Prudential Bank the sum of P27,785.89 which included the principal loan and accumulated interest and the Prudential Bank executed a subrogation receipt on the same date. On March 18, 1965, Philamgen brought an action in the Court of First Instance of Manila (Civil Case No. 60272, "The Philippine American General Insurance Co., Inc. vs. Benito H. Lopez") for reimbursement of the said amount. After hearing, the said court rendered judgment dismissing the complaint holding: The contention of the plaintiff that the stock of the defendant were merely pledged to it by the defendant is not borne out by the evidence. On the contrary, it appears to be contradicted by the facts of the case. The shares of stock of the defendant were actually transferred to the plaintiff when it became clear after the plaintiff and the defendant had been sued by the Prudential Bank that plaintiff would be compelled to make the payment to the Prudential Bank, in view of the inability of the defendant Benito H. Lopez to pay his said obligation. The certificate bearing No. 44 was cancelled and upon request of the plaintiff to the Baguio Military Institute a new certificate of stock was issued in the name of the plaintiff bearing No. 171, by means of which plaintiff became the registered owner of the 4,000 shares originally belonging to the defendant. It is noteworthy that the transfer of the stocks of the defendant in the name of the plaintiff company was made at the instance of Messrs. Abello and Pedrosa, who promised to buy the same from the plaintiff. Now that these shares of stock of the defendant had already been transferred in the name of the plaintiff, the defendant has already divested himself of the said stocks, and it would seem that the remedy of the plaintiff is to go after Messrs. Abello and Pedrosa on their promise to pay for the said stocks. To go after the defendant after the plaintiff had already become the owner of his shares of stock and compel him to pay his obligation to the Prudential Bank would be most unfair, unjust and illogical for it would amount to double payment on his part. After the plaintiff had already appropriated the said shares of stock, it has already lost its right to recover anything from the defendant, for the reason that the transfer of the said stocks was made without qualification. This transfer takes the form of a reimbursement of what plaintiff had paid to the Prudential Bank, thereby depriving the plaintiff of its right to go after the defendant herein. 5 Philamgen appealed to the Court of Appeals raising these assignments of errors: I. The lower court erred in finding that the evidence does not bear out the contention of plaintiff that the shares of stock belonging to defendant were transferred by him to plaintiff by way of pledge. II. The lower court erred in finding that plaintiff company appropriated unto itself the shares of stock pledged to it by defendant Benito Lopez and in finding that, with the transfer of the stock in the name of plaintiff company, the latter has already been paid or reimbursed what it paid to Prudential Bank.

III. The lower court erred in not finding that the instant case is one where the pledge has abandoned the security and elected instead to enforce his claim against the pledgor by ordinary action. 6 On December 17, 1970, the Court of Appeals promulgated a decision in favor of the Philamgen, thereby upholding the foregoing assignments of errors. It declared that the stock assignment was a mere pledge that the transfer of the stocks in the name of Philamgen was not intended to make it the owner thereof; that assuming that Philamgen had appropriated the stocks, this appropriation is null and void as a stipulation authorizing it is a pactum commissorium; and that pending payment, Philamgen is merely holding the stock as a security for the payment of Lopez' obligation. The dispositive portion of the said decision states: WHEREFORE, the decision of the lower court is hereby reversed, and another one is hereby entered ordering the defendant to pay the plaintiff the sum of P27,785.89 with interest at the rate of 12% per annum from December 9, 1963, 10% of the P27,785.89 as attorney's fees and the costs of the suit. 7 The motion for reconsideration with prayer to set the same for oral argument having been denied, Lopez brought this petition for review on certiorari presenting for resolution these questions: a) Where, as in this case, a party "sells, assigns and transfers" and delivers shares of stock to another, duly endorsed in blank, in consideration of a contingent obligation of the former to the latter, and, the obligations having arisen, the latter causes the shares of stock to be transferred in its name, what is the juridical nature of the transaction-a dation in payment or a pledge? b) Where, as in this case, the debtor assigns the shares of stock to the creditor under an agreement between the latter and determinate third persons that the latter would buy the shares of stock so that the obligations could be paid out of the proceeds, was there a novation of the obligation by substitution of debtor? 8 Philamgen failed to file its comment on the petition for review on certiorari within the extended period which expired on March 19, 1971. This Court thereby resolved to require Lopez to file his brief. 9 Under the first assignment of error, Lopez argues in his brief: That the Court of Appeals erred in holding that when petitioner "sold, assigned, transferred" and delivered shares of stock, duly endorsed in blank, to private respondent in consideration of a contingent obligation of the former to the latter and the obligation having thereafter arisen, the latter caused the shares of stock to be transferred to it, taking a new certificate of stock in its name, the transaction was a pledge, and in not holding instead that it was a dation in payment. 10 Considering the explicit terms of the deed denominated "Stock Assignment Separate from Certificate", hereinbefore copied verbatim, Lopez sold, assigned and transferred unto Philamgen the stocks involved "for and in consideration of the obligations undertaken" by Philamgen "under the terms and conditions of the surety bond executed by it in favor of the Prudential Bank" and "for value received". On its face, it is neither pledge nor dation in payment. The document speaks of an outright sale as there is a complete and unconditional divestiture of the incorporeal property consisting of stocks from Lopez to Philamgen. The transfer appears to have been an absolute conveyance of the stocks to Philamgen whether or not Lopez defaults in the payment of P20,000.00 to Prudential Bank. While it is a conveyance in consideration of a contingent obligation, it is not itself a conditional conveyance. It is true that if Lopez should "well and truly perform and fulfill all the undertakings, covenants, terms, conditions, and agreements stipulated" in his promissory note to Prudential Bank, the obligation of Philamgen under the surety bond would become null and void. Corollarily, the stock assignment, which is predicated on the obligation of Philamgen under the surety bond, would necessarily become null and void likewise, for want of cause or consideration under Article 1352 of the New Civil Code. But this is not the case here because aside from the obligations undertaken by Philamgen under the surety bond, the stock assignment had other considerations referred to therein as "value received". Hence, based on the manifest terms thereof, it is an absolute transfer.

Notwithstanding the express terms of the "Stock Assignment Separate from Certificate", however, We hold and rule that the transaction should not be regarded as an absolute conveyance in view of the circumstances obtaining at the time of the execution thereof. It should be remembered that on June 2, 1959, the day Lopez obtained a loan of P20,000.00 from Prudential Bank, Lopez executed a promissory note for ?20,000.00, plus interest at the rate of ten (10%) per cent per annum, in favor of said Bank. He likewise posted a surety bond to secure his full and faithful performance of his obligation under the promissory note with Philamgen as his surety. In return for the undertaking of Philamgen under the surety bond, Lopez executed on the same day not only an indemnity agreement but also a stock assignment. The indemnity agreement and the stock assignment must be considered together as related transactions because in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. (Article 1371, New Civil Code). Thus, considering that the indemnity agreement connotes a continuing obligation of Lopez towards Philamgen while the stock assignment indicates a complete discharge of the same obligation, the existence of the indemnity agreement whereby Lopez had to pay a premium of P1,000.00 for a period of one year and agreed at all times to indemnify Philamgen of any and all kinds of losses which the latter might sustain by reason of it becoming a surety, is inconsistent with the theory of an absolute sale for and in consideration of the same undertaking of Philamgen. There would have been no necessity for the execution of the indemnity agreement if the stock assignment was really intended as an absolute conveyance. Hence, there are strong and cogent reasons to conclude that the parties intended said stock assignment to complement the indemnity agreement and thereby sufficiently guarantee the indemnification of Philamgen should it be required to pay Lopez' loan to Prudential Bank. The character of the transaction between the parties is to be determined by their intention, regardless of what language was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even though a transfer, if regarded by itself, appears to have been absolute, its object and character might still be qualified and explained by a contemporaneous writing declaring it to have been a deposit of the property as collateral security. It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not discharged by the transfer, and that accordingly, the use of the terms ordinarily importing conveyance, of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous language or other circumstances excluding an intent to pledge. 11 We agree with the holding of the respondent Court of Appeals that the stock assignment, Exhibit C, is in truth and in fact, a pledge. Indeed, the facts and circumstances leading to the execution of the stock assignment, Exhibit C, and the admission of Lopez prove that it is in fact a pledge. The appellate court is correct in ruling that the following requirements of a contract of pledge have been satisfied: (1) that it be constituted to secure the fulfillment of a principal obligation; (2) that the pledgor be the absolute owner of the thing pledged; and (3) that the person constituting the pledge has the free disposal of the property, and in the absence thereof, that he be legally authorized for the purpose. (Article 2085, New Civil Code). Article 2087 of the New Civil Code providing that it is also the essence of these contracts (pledge, mortgage, and antichresis) that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor, further supports the appellate court's ruling, which We also affirm. On this point further, the Court of Appeals correctly ruled: In addition to the requisites prescribed in article 2085, it is necessary, in order to constitute the contract of pledge, that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement. (Art. 2093, N.C.C.) Incorporeal rights, including shares of stock may also be pledged (Art. 2095, N.C.C.) All these requisites are found in the transaction between the parties leading to the execution of the Stock Assignment, Exhibit C. And that it is a pledge was admitted by the defendant in his letter of November 18, 1963, Exhibit G, already quoted above, where he asked what had happened to his shares of stock "which were pledged to your goodselves to secure the said obligation". The testimony of the defendant-appellee that it was their agreement or understanding that if he would be unable to pay the loan to the Prudential Bank, plaintiff could sell the shares of stock or appropriate the same in full payment of its debt is a mere after-thought, conceived after he learned of the transfer of his stock to the plaintiff in the books of the Baguio Military Institute.

We also do not agree with the contention of petitioner that "petitioner's 'sale assignment and transfer' unto private respondent of the shares of stock, coupled with their endorsement in blank and delivery, comes exactly under the Civil Code's definition of dation in payment, a long recognized and deeply rooted concept in Civil Law denominated by Spanish commentators as 'adjudicacion en pago'". According to Article 1245 of the New Civil Code, dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. Speaking of the concept of dation in payment, it is well to cite that: Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. (2 Castan 525; 8 Manresa, 324) The property given may consist, not only of a thing, but also of a real right (such as a usufruct) or of a credit against a third person. (Perez Gonzales & Alguer :2-I Enneccerus, Kipp & Wolff 317). Thus, it has been held that the assignment to the creditor of the interest of the debtor in an inheritance in payment of his debt, is valid and extinguishes the debt. (Ignacio vs. Martinez, 33 Phil. 576) The modern concept of dation in payment considers it as a novation by change of the object, and this is to our mind the more juridically correct view. Our Civil Code, however, provides in this article that, where the debt is in money, the law on sales shall govern; in this case, the act is deemed to be a sale, with the amount of the obligation to the extent that it is extinguished being considered as the price. Does this mean that there can be no dation in payment if the debt is not in money? We do not think so. It is precisely in obligations which are not money debts, in which the true juridical nature of dation in payment becomes manifest. There is a real novation with immediate performance of the new obligation. The fact that there must be a prior agreement of the parties on the delivery of the thing in lieu of the original prestation shows that there is a novation which, extinguishes the original obligation, and the delivery is a mere performance of the new obligation. The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished. (8 Manresa 324; 3 Valverde 174 fn Assignment of property by the debtor to his creditors, provided for in article 1255, is similar to dation in payment in that both are substitute forms of performance of an obligation. Unlike the assignment for the benefit of creditors, however, dation in payment does not involve plurality of creditors, nor the whole of the property of the debtor. It does not suppose a situation of financial difficulties, for it may be made even by a person who is completely solvent. It merely involves a change of the object of the obligation by agreement of the parties and at the same time fulfilling the same voluntarily. (8 Manresa 324). 12 Considering the above jurisprudence, We find that the debt or obligation at bar has not matured on June 2, 1959 when Lopez "alienated" his 4,000 shares of stock to Philamgen. Lopez' obligation would arise only when he would default in the payment of the principal obligation (the loan) to the bank and Philamgen had to pay for it. Such fact being adverse to the nature and concept of dation in payment, the same could not have been constituted when the stock assignment was executed. Moreover, there is no express provision in the terms of the stock assignment between Philamgen and Lopez that the principal obligation (which is the loan) is immediately extinguished by reason of such assignment. In case of doubt as to whether a transaction is a pledge or a dation in payment, the presumption is in favor of pledge, the latter being the lesser transmission of rights and interests. Under American jurisprudence, A distinction might also be made between delivery of property in payment of debt and delivery of such property as collateral security for the debt. Generally, such a transfer was presumed to be made for collateral security, in the absence of evidence tending to show an intention on the part of the parties that the transfer was in satisfaction of the debt. This presumption of a transfer for collateral security arose particularly where the property given was commercial paper, or some other 'specialty' chose of action, that conferred rights upon transfer by delivery of a different nature from the debt, whose value was neither intrinsic nor apparent and was not agreed upon by the parties. 13

Petitioner's argument that even assuming, arguendo that the transaction was at its inception a pledge, it gave way to a dation in payment when the obligation secured came into existence and private respondent had the stocks transferred to it in the corporate books and took a stock certificate in its name, is without merit. The fact that the execution of the stock assignment is accompanied by the delivery of the shares of stock, duly endorsed in blank to Philamgen is no proof that the transaction is a dation in payment. Likewise, the fact that Philamgen had the shares of stock transferred to it in the books of the corporation and took a certificate in its name in lieu of Lopez which was cancelled does not amount to conversion of the stock to one's own use. The transfer of title to incorporeal property is generally an essential part of the delivery of the same in pledge. It merely constitutes evidence of the pledgee's right of property in the thing pledged. By the contract of pledge, the pledgor does not part with his general right of property in the collateral. The general property therein remains in him, and only a special property vests in the pledgee. The pledgee does not acquire an interest in the property, except as a security for his debt. Thus, the pledgee holds possession of the security subject to the rights of the pledgor; he cannot acquire any interest therein that is adverse to the pledgor's title. Moreover, even where the legal title to incorporeal property which may be pledged is transferred to a pledgee as collateral security, he takes only a special property therein Such transfer merely performs the office that the delivery of possession does in case of a pledge of corporeal property. xxx xxx xxx The pledgee has been considered as having a lien on the pledged property. The extent of such lien is measured by the amount of the debt or the obligation that is secured by the collateral, and the lien continues to exist as long as the pledgee retains actual or symbolic possession of the property, and the debt or obligation remains unpaid. Payment of the debt extinguishes the lien. Though a pledgee of corporation stock does not become personally liable as a stockholder of the company, he may have the shares transferred to him on the books of the corporation if he has been authorized to do so. The general property in the pledge remains in the pledgor after default as well as prior thereto. The failure of the pledgor to pay his debt at maturity in no way affects the nature of the pledgee's rights concerning the property pledged, except that he then becomes entitled to proceed to make the security available in the manner prescribed by law or by the terms of the contract, ... . 14 In his second assignment of error, petitioner contends that the Court of Appeals erred in not holding that since private respondent entered into an agreement with determinate third persons whereby the latter would buy the said shares so sold, assigned and transferred to the former by the petitioner for the purpose of paying petitioner's obligation out of the proceeds, there was a novation of the obligation by substitution of debtor. We do not agree. Under Article 1291 of the New Civil Code, obligations may be modified by: (1) changing their object or principal condition; (2) substituting the person of the debtor; (3) subrogating a third person in the rights of the creditor. And in order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. (Article 1292, N.C.C.) Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. (Article 1293, N.C.C.) Commenting on the second concept of novation, that is, substituting the person of the debtor, Manresa opines, thus: In this kind of novation it is pot enough to extend the juridical relation to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the relation. Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity, the first and the new debtor are considered obligated jointly. (8 Manresa 435, cited in Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. IV, p. 360)

In the case at bar, the undertaking of Messrs. Emilio Abello and Pio Pedrosa that they would buy the shares of stock so that Philamgen could be reimbursed from the proceeds that it paid to Prudential Bank does not necessarily imply the extinguishment of the liability of petitioner Lopez. Since it was not established nor shown that Lopez would be released from responsibility, the same does not constitute novation and hence, Philamgen may still enforce the obligation. As the Court of Appeals correctly held that "(t)he representation of Mr. Abello to Atty. Sumawang that he and Mr. Pedrosa would buy the stocks was a purely private arrangement between them, not an agreement between (Philamgen) and (Lopez)" and which We hereby affirm, petitioner's second assignment of error must be rejected. In fine, We hold and rule that the transaction entered into by and between petitioner and respondent under the Stock Assignment Separate From Certificate in relation to the Surety Bond No. 14164 and the Indemnity Agreement, all executed and dated June 2, 1959, constitutes a pledge of the 40,000 shares of stock by the petitioner-pledgor in favor of the private respondent-pledgee, and not a dacion en pago. It is also Our ruling that upon the facts established, there was no novation of the obligation by substitution of debtor. The promise of Abello and Pedrosa to buy the shares from private respondent not having materialized (which promise was given to said respondent only and not to petitioner) and no action was taken against the two by said respondent who chose instead to sue the petitioner on the Indemnity Agreement, it is quite clear that this respondent has abandoned its right and interest over the pledged properties and must, therefore, release or return the same to the petitioner-pledgor upon the latter's satisfaction of his obligation under the Indemnity Agreement. It must also be made clear that there is no double payment nor unjust enrichment in this case because We have ruled that the shares of stock were merely pledged. As the Court of Appeals said: The appellant (Philam) is not enriching himself at the expense of the appellee. True, the stock certificate of the appellee had been in the name of the appellant but the transfer was merely nominal, and was not intended to make the plaintiff the owner thereof. No offer had been made for the return of the stocks to the defendant. As the appellant had stated, the appellee could have the stocks transferred to him anytime as long as he reimburses the plaintiff the amount it had paid to the Prudential Bank. Pending payment, plaintiff is merely holding the certificates as a pledge or security for the payment of defendant's obligation. The above holding of the appellate court is correct and We affirm the same. As to the third assignment of error which is merely the consequence of the first two assignments of errors, the same is also devoid of merit. WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of the Court of Appeals is hereby AFFIRMED in toto, with costs against the petitioner. SO ORDERED. March 3, 1916 G.R. No. L-10265 EUTIQUIANO CUYUGAN, plaintiff-appellant, vs. ISIDORO SANTOS, defendant-appellee. Carson, J.: The complaint in this case alleges that the plaintiff is the sole heir of his mother, Guillerma Cuyugan y Candia, deceased; that in the year 1895 she borrowed the sum of P3,500 from the defendant and executed, at the same time, the document, Exhibit C, attached to the complaint, which purports on its face to be a deed of sale of the land described therein, with a reservation in favor of the vendor of the right to repurchase for the sum of P3,500; that although the instrument purports on its face to be a deed of sale, it was intended by the parties merely to evidence the loan of the nominal purchase price and to serve as a security for the repayment of the amount of the loan; that under the terms of the instrument plaintiffs mother was left i n possession of the land as a nominal tenant of the defendant at an annual rental of P420, an amount equal to the agreed upon annual interest on the loan at the rate of 12 per cent per annum; that in the year 1897 the borrower paid P1,000 on the loan, whereupon the nominal rent on the land was reduced from P420 to P300 per annum, that being the amount of the interest on the unpaid balance of the loan at the rate of 12 per cent per annum; that plaintiff and his mother continued in the peaceable possession of the land until the defendant, in the year prior to the institution of this action, served notice on the plaintiff that an

annual payment of P420 would be required of him thereafter, that is to say, the original amount of the annual payments as agreed upon prior to the payment of P1,000 on the debt in the year 1897; that upon plaintiffs refusal to meet this demand, defendant set up a claim of ownership in himself and threatened to eject the plaintiff from the land; that thereupon plaintiff offered to pay, and still stands ready to pay the balance due on the original indebtedness and the unpaid interest thereon for one year, but that defendant declined and continues to decline to accept the amount tendered and to cancel the formal deed of sale to the land. The prayer of the complaint is that the defendant be required to accept the amount thus tendered, and to cancel the formal deed of conveyance. A demurrer to the complaint was sustained by the court below on the ground that it does not set forth facts constituting a cause of action it appearing on the face of the deed of conveyance attached to the complaint that it was a deed of sale of land with a reserved right in the vendor to repurchase; and the allegations of the complaint disclosing that the deed of conveyance was executed by plaintiffs mother, that the stipulated price of repurchase has not been paid in full, and that th e time allowed in the deed for repurchase has long since expired. This is an appeal from the order sustaining the demurrer and dismissing the complaint. We are of opinion that the demurrer should have been overruled on two separate and distinct grounds, either one of which is sufficient to sustain the ruling. 1. Since the demurrer to the complaint admits all the material facts well pleaded therein, it follows that, for the purposes of the demurrer, the defendant admits that the true nature and intent of the transaction mentioned in the complaint was a mere loan of money secured by a formal conveyance of the land of the vendor; that the written instrument, purporting to be a deed of sale of the land, with a right of repurchase reserved by the vendor, did not set forth the real nature of the agreement between the parties thereto; and that the true intention and understanding of the parties at the time when the deed was executed and delivered was that it should be held by the defendant, not as a deed of sale of the land, but rather as an instrument in the nature of a mortgage, evidencing a loan secured by the lands of the borrower. The demurrer further admits that the borrowers successor in interest had tendered the full amount of the indebtedness together with the interest due and payable thereon at the time of the tender, and that he stands ready at any time to pay the full amount due on the loan with interest, upon the cancellation by the defendant of the formal deed of conveyance of the land. But proof of these facts would clearly entitle the plaintiff to the relief prayed for. The demurrer should therefore have been overruled and the plaintiff should have been given an opportunity to submit his evidence in support of the allegation of his complaint. It is contended, however, that even if all these allegations in the complaint were true in fact, nevertheless, the demurrer should be sustained, because, as it is said, these allegations of fact can not be sustained at the trial by the introduction of competent testimony, since the court will be compelled to exclude any evidence offered by the plaintiff which would tend to alter, vary, or defeat the terms of the written deed of conveyance which is attached to the complaint as an exhibit, and the execution of which the plaintiffs mother is expressly alleged and admitted in the complaint. In support of this contention we are cited to various decisions of this court wherein we have held that the intent of the parties executing instruments purporting to evidence sales of lands with the right of repurchase reserved to the vendors was sufficiently and satisfactorily disclosed by the terms of the instruments themselves; and that the intent of the parties as disclosed by the terms of these instruments should be given full force and effect in accordance therewith, despite the contentions of the vendors that the original transactions between the parties were had in contemplation of, and to give effect to contracts or agreements for the loan of money, the repayment of which was to be secured by the lands of the borrower. It is true that in a number of cases submitted to this court in which such a contention has been advanced, and in which the language of the instrument evidencing the transaction under investigation clearly and without ambiguity set forth a contract of sale with a reserved right to repurchase, we have uniformly declined to maintain such contentions, and have enforced the contract in accord with the terms of the instrument by which it was evidence. But it does not necessarily follow that such a contention can never be successfully asserted and maintained in the courts in this jurisdiction.

An examination of these cases will disclose that the true ground upon which they are based was the lack of evidence sufficiently clear, satisfactory and convincing to sustain a holding that the true nature of the transaction between the parties was any other than that set forth in written instruments executed by them and purporting to evidence sales of land with a right of repurchase reserved to the vendors. And the fact that, in the cases relied upon, the court examined and weighed the evidence before rejecting it as insufficient affords reasonable ground for an inference that had the court been of the opinion that the parol evidence submitted in any of these cases was clear, satisfactory and convincing, it might, and doubtless would have arrived at a different conclusion. But however this may be, and without entering upon an extend review of the reported opinions of this court to ascertain whether language has been used in any of them which might be construed as an intimation by this court of its views on the question now under consideration, we are of the opinion that the issues raised on this appeal are such as to impose on us the duty of reexamining the whole question as to the power of the courts in this jurisdiction to admit extraneous parol evidence in support of allegations that an instrument in writing, purporting on its face to transfer the absolute title to property, or to transfer the title with a mere right of repurchase under specified conditions reserved to the vendor, was in truth and in fact given merely as a security; and upon proof of the truth of such allegations to enforce such an agreement or understanding in accord with the true intend of the parties at the time when it was executed. The question having been brought here on an appeal from a ruling on a demurrer, the issue of law is squarely presented, without being obscured or befogged by the intervention of any doubtful question of fact, or of the relevancy, materiality, competence or probative value of specific questions and answers in a particular case. We are of opinion, and so hold, that on both principle and authority, this question must be answered in the affirmative. The Supreme Court of Porto Rico in the case of Monagas vs. Albertucci (17 Porto Rico, 684, cited and in effect affirmed as to this ruling by the Supreme Court of the United States, 235 U. S., 81) observed in the course of a discussion of a similar question that The American doctrine on this subject does not differ materially from the principles set forth in our Civil Code, a code which is substantially identical with the Civil Code of the Philippines in all its provisions with relation to the question under consideration; and we are satisfied on a full review of the whole question that, under our Codes, both substantive and adjective, the doctrine which must be applied in this jurisdiction does not differ materially from the equitable doctrine frequently announced and applied by the Supreme Court of the United States in the numerous cases in which similar questions have come to it from the various states and territories within its jurisdiction. We shall consider first, whether the provisions of the new Code of Civil Procedure should be so construed as to deny the right to the borrower in such cases, to introduce extraneous and parol evidence to support his allegations as to the existence of a parol agreement, whereby the lender obligated himself to hold the title to the lands merely as security for the repayment of the debt; and further whether there is anything in that Code which would deny the right of the borrower in such cases, upon proof of such allegations, to enforce the agreement in accordance with its terms. The authors of the new Code of Civil Procedure (Act No. 190 of the Civil Commission) were American lawyers, and the avowed purpose and object of its enactment was to introduce in these Islands a system of procedure of civil cases modelled upon precedents in general use in the United States. Most of its provisions are borrowed directly from the statute books of one or other of the States of the Union, and many of its more important provisions have been construed and applied by both state and federal courts of last resort. We have, therefore, in the Supreme Court Reports of the various States from which these provisions were borrowed, numerous precedents of strong and persuasive, if not conclusive authority; and, except in so far as they are affected by the substantive law in force in this jurisdiction or necessarily modified by local conditions, we have always felt ourselves bound by the rulings of the Supreme Court of the United States in construing and applying statutory enactments modelled upon or borrowed from English or American originals. The various provisions of the new Code of Civil Procedure which have any bearing on the question now under consideration, or statutory provisions of like tenor and effect, have been construed and applied by all or nearly all the courts of last resorts in England and the United States; and while these courts are not wholly in accord as to the reasoning upon which their conclusions are based, it may safely be asserted that with substantial, if not absolute unanimity, they have arrived a substantially similar results.

But we shall not shop at this time to review all the questions which have been raised in connection with the subject now under consideration. It will be sufficient for our purposes to examine the obligations which have been advanced against the admission of parol evidence to sustain allegations similar in effect to those set forth in the case at bar, based either on the ground that such evidence should be excluded under the Statute of Frauds, the alleged agreement not having been reduced to writing, or on the ground that its admission would violate the rule that parol evidence will not be admitted to vary or contradict the terms of a written instrument. For this purpose we can do no better than to insert here a few citations from the books, which set forth quite fully the doctrine in this regard that has been announced by the great weight of authority, and which in our opinion should prevail in this jurisdiction in applying and construing the pertinent provisions of the new Code of Civil Procedure. But, before doing so, it may be well to indicate that we do not adopt every proposition advanced in these somewhat extended citations from text-book and judicial authority, and that, at this time, we make the doctrine our own only to the extent of declaring that the provisions of the new Code of Civil Procedure do not have the effect of excluding parol evidence in support of allegations such as those set forth in the complaint in the case at bar, or of denying the right of the borrower in cases of this kind to enforce the alleged agreement in accordance with its terms. Supported by numerous citations the doctrine summarily stated in 27 Cyclopedia, page 1023, is as follows: Effect of statute of frauds. The statute of frauds does not stand in the way of treating an absolute deed as a mortgage, when such was the intention of the parties, although the agreement for redemption or defeasance rests wholly in parol, or is proved by parol evidence. The courts will not permit the statute to be used as a shield for fraud, or as a means for perpetrating fraud. Rule prohibiting contradiction of written documents. The admission of parol testimony to prove that a deed absolute in form was in fact given and accepted as a mortgage does not violate the rule against the admission of oral evidence to vary or contradict the terms of a written instrument. In the case of Russell vs. Southard (53 U. S., 139, 147), the Supreme Court of the United States dealt with these objections in part as follows: The first question is, whether this transaction was a mortgage, or a sale. It is insisted, on behalf of the defendants, that this question is to be determined by inspection of the written papers alone, oral evidence not being admissible to contradict, vary, or add to, their contents. But we have no doubt extraneous evidence is admissible to inform the court of every material fact known to the parties when the deed and memorandum were executed. This is clear, both upon principle and authority. To insist on what was really a mortgage, as a sale, is in equity a fraud, which cannot be successfully practiced, under the shelter of any written papers, however precise and complete they may appear to be. In Conway vs. Alexander (7 Cranch, 238), Ch. J. Marshall says: `Having made these observations on the deed itself, the court will proceed to examine those extrinsic circumstances, which are to determine whether it was a sale or a mortgage; and in Morris vs. Nixon (1 How., 126), it is stated; The charge against Nixon is, substantially, a fraudulent attempt to convert that into an absolute sale, which was originally meant to be a security for a loan. It is in this view of the case that the evidence is admitted to ascertain the truth of the transaction, though the deed be absolute on its face. These views are supported by many authorities. (Maxwell vs. Montacute, Pr. in Ch., 526; Dixon vs. Parker, 2 Ves., Sen., 225; Prince vs. Bearden, 1 A. K. Marsh. [Ky.], 170; Oldham vs. Halley, 2 J. J. March. [Ky.], 114; Whittick vs. Kane, 1 Paige [N. Y.], 202; Taylor vs. Luther, 2 Sumn, 232; Flagg vs. Mann, Id., 538; Overton vs. Bigelow, 3 Yerg. [Tenn.] 513; Brainerd vs. Brainerd, 15 Conn., 575; Wright vs. Bates, 13 Vt., 341; McIntyre vs. Humphries, 1 Hoffm. [N. Y.] Ch., 331; 4 Kent, 143, note A., and 2 Green. Cruise, 86, n.) It is suggested that a different rule is held by the highest court of equity in Kentucky. If it were, with great respect for that learned court, this court would not feel bound thereby. This being a suit in equity, and oral evidence being admitted, or rejected, not by the mere force of any state statute, but upon the principles of general equity jurisprudence, this court must be governed by its own views of those principles. (Robinson vs. Campbell, 3 Wheat., 212; United States vs. Howland, 4 Id., 108; Boyle vs. Zacharie et al., 6 Pet., 658; Swift vs. Tyson, 16 Id., 1; Foxcroft vs. Mallett, 4 How., 379.) But we do not perceive that the rule held in Kentucky differs from that above laid down. The rule, as stated in Thomas vs. McCormack (9 Dana [Ky.], 109), is that oral evidence is not admissible in opposition to the legal import of the deed, and the positive denial in the answer,

unless a foundation for such evidence had been first laid by an allegation, and some proof of fraud or mistake in the execution of the conveyance, or some vice in the consideration. But the inquiry still remains, what amounts to an allegation of fraud, or of some vice in the consideration and it is the doctrine of this court, that when it is alleged and proved that a loan on security was really intended, and the defendant sets up the loan as a payment of purchase money, and the conveyance as a sale, both fraud and a vice in the consideration are sufficiently averred and proved to require a court of equity to hold the transaction to be a mortgage; and we know of no court which has stated this doctrine with more distinctness, than the Court of Appeals of the State of Kentucky. In Edrington vs. Harper (3 J. J. Marsh. [Ky.], 355), that court declared: `The fact that the real transaction between the parties was a borrowing and lending, will, whenever, or however it may appear, show that a deed absolute on its face was intended as a security for money; and whenever it can be ascertained to be a security for money, it is only a mortgage, however artfully it may be disguised. xxx xxx xxx In respect to the written memorandum, it was clearly intended to manifest a conditional sale. Very uncommon pains are taken to do this. Indeed, so much anxiety is manifested on this point, as to make it apparent that the draftsman considered he had a somewhat difficult task to perform. But it is not to be forgotten, that the same language which truly describes a real sale, may also be employed to cut off the right of redemption, in case of a loan on security; that it is the duty of the court to watch vigilantly these exercises of skill, lest they should be effectual to accomplish what equity forbids; and that, in doubtful cases, the court leans to the conclusion that the reality was a mortgage, and not a sale. (Conway vs. Alexander, 7 Cranch, 218; Flagg vs. Mann, 2 Sumn., 533; Secrest vs. Turner, 2 J. J. March. [Ky.], 471; Edrington vs. Harper, 3 Id., 354; Crane vs. Bonnell, 1 Green [N. J.] Ch., 264; Robertson vs. Campbell, 2 Call. [Va.], 421; Poindexter vs. McCannon, 1 Dev. [N. C.] Eq., 373.) It is true Russell must have given his assent to this form of the memorandum; but the distress for money under which he then was, places him in the same condition as other borrowers, in numerous cases reported in the books, who have submitted to the dictation of the lender under the pressure of their wants; and a court of equity does not consider a consent, thus obtained, to be sufficient to fix the rights of the parties. `Necessitous men, says the Lord Chancellor, in Vernon vs. Bethell (2 Eden , 113), `are not, truly speaking, free men; but, to answer a present emergency, will submit to any terms that the crafty may impose upon them. The memorandum does not contain any promise by Russell to repay the money, and no personal security was taken; but it is settled that this circumstance does not make the conveyance less effectual as a mortgage. (Floyer vs. Lavington, 1 P. Wms., 268; Lawly vs. Hooper, 3 Atk., 278; Scott vs. Fields, 7 Watts. [Pa.], 360; Flagg vs. Mann, 2 Sumn., 533; Ancaster vs. Mayer, 1 Bro. C. C., 464.) And consequently it is not only entirely consistent with the conclusion that a mortgage was intended, but in a case where it was the design of one of the parties to clothe the transaction with the forms of a sale, in order to cut off the right of redemption, it is not to be expected that the party would, by taking personal security, effectually defeat his own attempt to avoid the appearance of a loan. Citing and relying upon this case Mr. Justice Field speaking for the Supreme Court of the United States (Brick vs. Brick, 98 U. S., 514) announced the doctrine with relation to transactions in personal property, which is summarized as follows in the head notes: Parol evidence is admissible in equity to show that a certificate of stock issued to a party as owner was delivered to him as security for a loan of money. A court of equity will look beyond the terms of an instrument to the real transaction, and when that is shown to be one of security and not of sale, it will give effect to the actual contract of the parties. The rule which excludes such evidence to contradict or vary a written instrument does not forbid an inquiry into the object of the parties in execution and receiving it. In the case of Monagas vs. Albertucci (235 U. S., 81, 83) the Supreme Court of the United States inserts the following excerpt from the opinion of the Supreme Court of Porto Rico (17 Porto Rico, 684, 686): The whole case really turns on the question of whether the written instrument in controversy was a mortgage or a conditional sale. If it is the latter, it must be complied with according to its terms; if the former, the plaintiff must be allowed to repay the

money received and take a reconveyance of the land. The real intention of the parties at the time the written instrument was made must govern in the interpretation given to it by the courts. This must be ascertained from the circumstances surrounding the transaction and from the language of the document itself. The correct test, where it can be applied, is the continued existence of a debt or liability between the parties. If such exists, the conveyance may be held to be merely a security for the debt or an indemnity against the liability. On the contrary, if no debt or liability is found to exist, then the transaction is not a mortgage, but merely a sale with a contract of repurchase within a fixed time. While every case depends on its own special facts, certain circumstances are considered as important, and the courts regard them as throwing much light upon the real intent of the parties and upon the nature of such transactions: such are the existence of a collateral agreement made by the grantor for the payment of money to the grantee, his liability to pay interest, inadequacy of price paid for the conveyance, the grantor still remaining in possession of the land conveyed, and any negotiation or application for a loan made preceding or during the transaction resulting in the conveyance. The American doctrine on this subject does not differ materially from the principles set forth in our Civil Code. We insert here an extract of some length from the discussion of the subject (supported by numerous citations of authority) found in Jones Commentaries on Evidence, (1913) volume 3, paragraphs 446, 447: 446. To show that instruments apparently absolute are only securities. It has long been the settled rule that in courts exercising equitable jurisdiction it is admissible to prove by parol that instruments in writing apparently transferring the absolute title are in fact only given as security. The doctrine is thus stated by Mr. Field: `It is an established doctrine that a court of equity will treat a deed, absolute in form, as a mortgage, when it is executed as security for loan of money. That court looks beyond the terms of the instrument to the real transaction; and when that is shown to be one of security and not of sale, it will give effect to the actual contract of the parties. As the equity, upon which the court acts in such cases, arises from the real character of the transaction, any evidence, written or oral, tending to show this is admissible. The rule which excludes parol testimony to contradict or vary a written instrument has reference to the language used by the parties. That cannot be qualified or varied from its natural import, but must speak for itself. The rule does not forbid an inquiry into the object of the parties in executing and receiving the instrument. Although in some of the earlier cases this evidence was received only on the grounds of fraud or mistake, yet in later cases it was deemed sufficient evidence of fraud for the grantee to treat the conveyance as absolute, when in fact it was not, and the tendency of the modern decisions is that such evidence may be received to show the real nature and object of the transaction, although no fraud or mistake of any kind is alleged or proved. It is held that the agreement for the defeasance, whether written or unwritten, is no more than one of the conditions upon which the deed was given, and therefore constitutes a part of the consideration for the conveyance . . . . Where the deed does not contain the defeasance, the presumption arises that the conveyance is absolute, and, in making proof that a defeasance was intended by the parties, and was in fact a part of the consideration upon which the conveyance was made, this presumption must be removed by testimony before the debtor can use the evidence showing his right to defeat the absolute character of the conveyance . . . . It comes finally to a question of what was the understanding and the intention of the parties at the time the instrument was made; and this, like any other fact, depends for its support upon what was said and done by the parties at the time, together with all the other circumstances bearing upon the question. 447. Same Real intention of the parties to be ascertained. In applying the exception under discussion, the extrinsic evidence will not be received because of any particular form of language which the parties may have adopted. As we have shown in the preceding section, the intention of the parties must govern; and it matters not what peculiar form the transaction may have taken. The inquiry always is, Was a security for the loan of money or other property intended? But where the deed and accompanying papers on their face constitute a mortgage, parol evidence is not competent to show the contrary. In solving the question upon the facts, a few things are absolutely necessary to be found to exist before the deed can be construed a mortgage. A debt owing to the mortgagee, or a liability incurred for the grantor, either preexisting or created at the time the deed is made, is essential to give the deed the character of a mortgage. The relation of debtor and creditor must appear. The existence of the debt is one of the tests. The amount of the debt, as well as its continuance, should also be made to appear where a foreclosure is asked in the same suit wherein it is sought to establish the character of the instrument. It is also of importance to know precisely when the character claimed for the instrument was fixed. In construing the deed to be a mortgage, its character as such must have existed from its very inception, created at the time the conveyance was made. The character of the transaction is precisely what the intention of the parties at the time made it. It will therefore be discovered that the testimony of those who were present at the time the instrument was made, and especially of those who participated in the transaction, becomes most important. In arriving at the real intent of the parties, their statements and acts at the time of the transaction, the inadequacy of the consideration named in the deed, the prior existence of a debt, and the recognition of

its continuance, as by the payment of interest or other acts, are all facts to be considered, and are relevant to the issue. But although parol evidence is received in such cases to show the real nature of the transaction, the presumption is that the instrument is what it purports to be; and before a deed absolute in form can be shown to be a mortgage, the proof should be clear and convincing. The burden rests upon the moving party of overcoming the strong presumption arising from the terms of a written instrument. If the proofs are doubtful and unsatisfactory, if there is a failure to overcome this presumption by testimony entirely plain and convincing beyond reasonable controversy, the writing will be held to express correctly the intention of the parties. A judgment of the court, a deliberate deed or writing, are of too much solemnity to be brushed away by loose and inconclusive evidence. Proof tending to show that no transfer of title was contemplated does not fall within the condemnation of the rule prohibiting oral evidence to vary the terms of a written instrument. As the rule has often been stated, `to convert a deed absolute into a mortgage, the evidence should be so clear as to leave no substantial doubt that the real intention of the parties was to execute a mortgage. Having disposed of the contention that the provisions of the new Code of Civil Procedure, enacted under American sovereignty, forbid the introduction of parol evidence to establish the true nature of transactions such as that under consideration in the case at bar, we come now to consider whether there is anything in the Spanish Codes which denies the power of the courts to enforce the equitable doctrine announced by the Supreme Court of the United States with reference to agreements and understandings of this nature. But first, it may be well at this time to emphasize the fact that the courts of these Islands are not organized with reference to the old English and American classification into courts of law and equity; and that our Codes recognize no distinction between actions at law and suits in equity, as these terms are understood in English and American jurisdictions, wherein a distinction is made between law and equity in the enforcement of private rights and the redress of private wrongs. Deeply embedded among the fundamental principles on which the authors of the Civil Code of Spain erected that monument to their genuis as codifiers, is the broad equitable rule that No man may wrongfully (tortiously) enrich himself at the expe nse of (to the injury of) another. (E aun dixeron, que ninguno non deue enriqueszer tortizeramente con dao de otro). (Regla 17, Title 34, Setena Partida, sentencias Tribunal de Espaa, May 1, 1875; December 16, 1880; May 24, 1882, April 24, 1896.) As deeply embedded at the very foundation of all the provisions of the Spanish Code touching the nature and effect of all contractual obligations is the maxim that the will of the contracting parties is the law of their contract a maxim which is amplified in the elementary propositions that contracts are perfected by mere consent (article 1258); that the contracting parties may make any agreement and establish any clauses and conditions which they may deem advisable, provided they are not in contravention of law, morals, or public order (article 1255); that the validity and fulfillment of contracts cannot be left to the will of one of the contracting parties (article 1256); and that contracts shall be binding, whatever be the form in which they may have been executed, provided the essential conditions required for their validity exist (article 1278). In the light of these elementary and basic principles of the Code there can be no question, in the absence of express statutory prohibition, as to the validity of an agreement or understanding whereby the lender of money, who as security for the repayment of the loan has taken a deed to land, absolute on its face or in the form of a deed reserving a mere right of repurchase to the vendor, obligates himself to hold such deed, not as evidence of a contract of sale but by way of security for the repayment of the debt; and that unless the rights of innocent third persons have intervened the lender of the money may be compelled to comply specifically with the terms of such an agreement, whether it be oral or written; and further, that he will not be permitted, in violation of its terms, to set up title in himself or to assert a claim or absolute ownership. If the parties actually enter into such an agreement, the lender of the money is legally and morally bound to fulfill it. Of course such an oral contract does not give the borrower a real right in the lands unless it is executed in compliance with the formalities prescribed by law. If entered into orally, it creates a mere personal obligation which in no wise effects the lands, and if the lender conveys the lands to innocent third persons, the borrower must content himself with a mere right of action for damages against the lender, for failure to comply with his agreement. But so long as the land remains in the hands of the lender, the borrower may demand the fulfillment of the agreement, and a mere lack of any of the formalities prescribed under the Spanish Code for the execution of contracts affecting real estate will not defeat his right to have the contract fulfilled, as the lender may be compelled in appropriate proceedings to execute the contract with the necessary prescribed formalities.

We have frequently held that under the Spanish Codes an oral contract affecting lands, even an oral contract for the sale of lands, was valid and enforceable, provided none of the essential requisites of all valid contracts is lacking, that is to say, (1) consent, (2) definite object, and (3) causa or consideration. The lack of the formal requisites prescribed by the Code in order that such contracts may become effective to bind or convey the property, such as their execution in public instruments and the like, does not invalidate them as personal obligations, as either party may compel the other to comply with such formalities from the moment the valid personal obligation has been entered into. (Article 1279 of the Civil Code.) In like manner an agreement such as we have just described, entered into by a lender of money, who has taken lands and security for its repayment, is a valid contract, and we know of no provision in the Codes which denies the right of the borrower to demand its fulfillment. On the contrary, provided the rights of innocent purchasers for valuable consideration have not intervened, and provided of course that the borrower can establish satisfactorily the fact that such a contract was actually entered into, the principle that no man may wrongfully enrich himself at the expense of another imposes an imperative obligation on the lender to carry out his contract, and secures the right to the borrower to have it enforced by the courts. And on the other hand, the same principle secures to the lender the right to enforce the contract upon the failure of the borrower to comply with its terms, that is to say, to have the lands held as security sold and the proceeds applied to the payment of the debt. But this conclusion is in substance and in effect identical with that arrived at by the courts in England and the United States, when they declare that the transaction in such cases will be treated as in the nature of an equitable mortgage and enforced as such. That is merely to say that the parties will be compelled to comply with the terms of the agreement that the lands should be held as security for the debt, provided of course the agreement can be established by competent evidence and the rights of innocent third parties have not intervened. Under neither system will the contract be given the effect of a duly recorded or a valid mortgage, so as to bind the lands in the hands of innocent third persons; but the result under both systems is substantially identical in that as long as the property remains in the hands of the lender he cannot deny the right of the borrower to recover the lands by the payment of the debt, nor can he set up a claim of absolute ownership on the lands which will defeat the right of the borrower in this regard until and unless the borrowers right of action has prescribed. The real difficulty which has confronted the borrowers in attempting to enforce alleged contracts of this nature has not lain in the failure of the law to recognize their rights in the premises, but rather in the inherent difficulties confronting them in their attempts to prove the existence of such a contract. In the very nature of things the disqualification of those directly interested in an action to testify as witnesses, prescribed in article 1247 of the Spanish Code, must have enormously increased the difficulties confronting a borrower in an attempt to establish the existence of such an oral contract, prior to the enactment of the new Code of Civil Procedure prescribing new rules in this regard. This because, as a rule, the existence of such contracts is made known to few persons other than the contracting parties themselves. And while the new rules of evidence have removed this difficulty from the path of the lender seeking to establish the existence of such an agreement, they by no means relief him of the necessity of establishing his allegations by clear, convincing and satisfactory evidence. The principle on which the codifiers rested the rule laid down in article 1248 of the Civil Code is not less imperative under the new rules of evidence than under those found in the Spanish Code. That article is as follows: The probative force of the testimony of the witnesses shall be valued by the courts in accordance with the provisions of the Law of Civil Procedure, taking care to avoid that, by the simple coincidence of some testimony, unless its truthfulness be evident, the affairs may be finally decided in which are usually employed public deeds, private documents, or any commencement of written evidence. In this jurisdiction, as in the United States, the existence of an oral agreement or understanding such as that alleged in the complaint in the case at bar cannot be maintained on vague, uncertain and indefinite testimony, against the reasonable presumption that prudent men who enter into such contracts will execute them in writing, and comply with the formalities prescribed by law for the creation of a valid mortgage. But where the evidence as to the existence of such an understanding

or agreement is clear, convincing and satisfactory, the same broad principles of equity operate in this jurisdiction as in the United States to compel the parties to live up to the terms of their contract. 2. The second ground upon which the demurrer should have been overruled is that it admits the truth of the allegation of the complaint that in the year 1897, two years after the date of the execution of the instrument purporting to be a deed of sale, the nominal vendor paid the nominal purchaser P1,000, whereupon the nominal rent of the land was reduced from P420 to P300 per annum, the real purpose and object of this arrangement being to reduce the amount of the annual interest on the original loan made to the nominal vendor of the land, proportionately to the reduction of the amount of the loan itself by the payment of P1,000. If it be true that two years after the transaction evidenced by the instrument attached to the complaint, the defendant accepted from the plaintiffs mother the sum of P1,000, and thereafter reduced the amount of the annual payments to be made by her, it cannot be doubted that the plaintiff has a good cause of action against the defendant. The acceptance by the defendant of this large sum of money, under the circumstances as they appear from the complaint, can only be accounted for on one of two hypotheses. Either the original transaction was in truth and in fact an arrangement or agreement by virtue of which a loan of money was made and secured by a formal deed of sale of land with a reserved right of repurchase; or, if the original transaction was in truth and in fact one of purchase and sale of real estate, with a reserved right of repurchase in the vendor, then the purchaser, by the acceptance from the vendor of the sum of P1,000, waived and surrendered his rights under the original contract, and entered into a new contract with the vendor, under which he obligated himself to cancel the deed, or resell the land to the original vendor on the payment of the balance of the original purchase price, and bound himself not to exercise his right, under the original deed of sale, to refuse to allow the original vendor to repurchase after the expiration of the period stipulated in the original contract for that purpose. Upon either hypothesis, plaintiff would clearly be entitled to the relief prayed for in his complaint. Of course the defendant is not entitled to keep both the land and the payment of a thousand pesos. The acceptance and retention of such a payment is wholly inconsistent with a claim of a right of absolute ownership in the land, without any obligation to resell it to the original vendor. Defendant can not eat his cake and have it too. In the case of Lichauco vs. Berenguer (20 Phil. Rep., 12), we found the fact that various partial payments had been made by the vendor, and accepted by the purchaser, for the purpose of repaying the original purchase price, absolutely incompatible with the idea of the irrevocability of the title of ownership of the purchaser at the expiration of the term stipulated in the original contract for the exercise of the right of repurchase. Speaking through the Chief Justice, we said in that case: The vendee, who has been reimbursed by the vendor for a part of the repurchase price, is bound to fulfill the obligation to sell back, derived from the sale with right to repurchase, or must show reason why he may keep this part of the price and, notwithstanding his so doing, be considered released from effecting the resale. He may be entitled to require the completion of the price, or that he be paid other expenses before he returns the thing which he had purchased under such a condition subsequent; but the exercise of the right of redemption having been begun and admitted, the irrevocability of the ownership in such manner acquired is in all respects incompatible with these acts so performed. The order entered in the court below, sustaining the demurrer to the complaint must be reversed, and the record remanded for further proceedings, without costs in this instance. Let judgment be entered in accordance herewith. So ordered. Arellano, C.J., Torres, Trent, and Araullo, JJ., concur. Johnson and Moreland, JJ., took no part. G.R. No. L-50320 March 30, 1988 PHILIPPINE APPAREL, WORKERS UNION, petitioner, respondents. PARAS, J. : This is a classic case of dilatory tactics employed to obstruct justice.

vs. NLRC, APPAREL PHILIPPINE APPAREL, INC.,

On July 31, 1981, this Court rendered Judgment in this case, the dispositive portion of which reads: WHEREFORE, the writ of certiorari is hereby granted, the decision of the respondent Commission is hereby set aside, and private respondent is hereby directed to pay, in addition to the increased allowance provided for in P.D. 1123, the negotiated wage increase of P0.80 daily effective April 1, 1977 as well as all other wage increases embodied in the collective bargaining agreement, to all covered employees. Costs against private respondent. This decision, is immediately executory (p. 178, rec.). A motion for reconsideration of the July 31, 1981 decision. this Court was filed by private respondent. Petitioner, through the Paterno D. Menzon Law Office, filed a comment thereon. This Court, on October 21, 1981 denied the aforesaid motion for reconsideration and the denial was declared final Entry of judgment was made on October 30, 1981 (Rollo, p. 244). On December 18, 1981 the respondent NLRC issued an order, through Labor Arbiter Antonio Tria Tirona, directing the Chief of the Research and Information Division of the NLRC to designate a Socio-Economic Analyst to compute the awards due the members of the petitioner union in accordance with the final disposition of this case. On January 10, 1983 petitioner flied an "Urgent Manifestation and Motion" claiming that despite its filing of a motion for execution dated November 12, 1981, a manifestation and motion dated February 10, 1982, and another manifestation and motion dated February 26, 1982, the execution arm of public respondent NLRC continued to fail to implement the decision of this Court. Petitioner prayed that those obstructing the implementation of the decision be declared in contempt, especially the president of Bagong Pilipino Philippine Apparel Workers' Union (BPPAWU) and private respondent PAI for circumventing the final decision of this Court by offering members of petitioner the amount of P500 each as full payment of their claims in the instant case. The respondent NLRC, in its Comment on petitioner's "Urgent Manifestation and Motion" explained that it could not issue a writ of execution because the actual or exact amounts of the various awards due the members of the petitioner union could not be determined. For that matter, even with the submission of the "Report of Examiner" prepared by the Research and Information Division of the NLRC, it was not possible for the NLRC to issue a writ of execution in full satisfaction of the judgment of this Court because said "Report of Examiner" did not include the computation of the amounts due for the months of May, June, November and December 1978, and January and February 1980 as the pertinent records covering those periods were not available at the time of the preparation of the Report. Adding confusion was the fact that even before the submission of the "Report of Examiner," private respondent PAI had already made payments in satisfaction of this Court's decision to some of the members of the petitioner union. Moreover, after the submission of the Reports, and notwithstanding its exception to the findings therein, private respondent PAI continued to make payments to the other members of the union. Respondent PAI offered the payment to petitioner's counsel but the latter refused to accept the payment because the amount offered left some 88 members of the petitioner unpaid. Petitioner's counsel was willing to accept the money only as partial payment, but not as full payment as PAI wanted it to be. On October 27, 1983, this Court issued an order requiring private respondent PAI to comply fully with this Court's decision of July 31, 1981; to pay the members of the petitioner the amount of P695,413.17, with 10% thereof to be deducted as attorney's fees payable to the Menzon Law Office; to make available, within ten (10) days from notice thereof, to public respondent its payrolls corresponding to the unpaid periods, for the latter to prepare immediately a computation within thirty (30.1 days from receipt of such payrolls; and, thereafter, to pay members of petitioner the remaining backwages within ten (1 0) days from receipt of such computation. In that same order of October 27, 1983, the BPPAWU, Atty. Luis D. Flores and respondent Philippine Apparel, Inc. were adjudged guilty of contempt and were ordered to pay one thousand pesos (Pl,000) each within ten (10) days from notice thereof. The Court justified its ruling as follows:

Report of the Examiner indicating the amount due them was submitted only after one and a half years, so that in the meantime, negotiations on how the judgment may be executed were made. It is the posture of the Paterno D. Menzon Law Office that the judgment cannot be negotiated, hence any act to subvert it is contemptuous. We agree, The attempts of the BPPAWU and its counsel and respondent company to render the decision of this Court meaningless by paying the backwages of the affected employees in a lesser amount clearly manifest a willful disregard on their part, of the authority of this Court as the final arbiter of cases brought to it. The series of acts by the BPPAWU from the outset, where they caused the 'Kapahintulutan' to be circulated and signed by workers declaring as invalid any acts of petitioner union and its counsel to the time they campaigned for the workers to receive the amount of P300.00 or P500.00 but with the concomitant obligation to release the company from any further liability showed disrespect for the administration of justice. The BPPAWU and its counsel cannot pretend that they are just being more protective to the employees when they encouraged them to receive the amount of P300.00 or P500.00. They know too well that said amount is much less than that to be received by the employees after computing all the backwages if the decision is executed. It would have been laudable had not the company pressed the workers to sign the quitclaims and release of which the BPPAWU cannot pretend to be unaware, for the payment could be taken as initial compliance with the judgment with the balance to be paid by the company when the final computation of the backwages has been finished and submitted by the Research and Information Division of the National Labor Relations Commission. Indeed, their questionable acts do not sit well with a desire to implement the decision of this Court. If the BPPAWU is really after the welfare of the employees, they will not leave any stone unturned to get the best for them by giving effect to the decision of this Court. In our decision, we have ordered the company to pay the negotiated wage increase of P0.80 daily effective April 1, 1977. As per petitioner's; computation, as may be gleaned from the urgent motion for issuance of a restraining order dated March 11, 1982, on backwages alone, not counting adjustments in overtime pay and other benefits, each employee is entitled to receive at the very least of Pl,248.00 (P0.80 x 26 working days x 12 months x 5 years from 1977 to 1982) [p. 281, recli If we shall include the backwages corresponding from January, 1983 to the present, the same will definitely be higher than Pl,248.00. Clearly, the offer by the company, supported by the BPPAWU to pay the employees in the amount of P300.00 or P500.00 as full and final payment is unjust to them, especially if We shall consider that some employees did not have the alternative but to accept the payment because they were in a tight financial condition. Such move cannot he sanctioned by this Court, for otherwise giving effect to the award of backwages would be left to the whim of the losing company taking advantage of the rationale behind the decision in Mercury Drug Co. v. CIR (L-23357, promulgated April 30, 1974, 56 SCRA 695), the quitclaims and releases signed by the employees are considered null and void. The employees are therefore still entitled to the difference between what is due them and the amount they received. Another important consideration is that if We countenance such act, the sanctity of the contract validly entered into by the parties which as in this case was interpreted by this Court, will be violated. Rollo, pp. 382-384) In their obvious attempts to derail the implementation of this Court's decision which had long become final and executory as far back as over six years ago on October 21, 1981, private respondents endlessly belabored this Court's ruling finding them guilty of contempt. Enough is enough. If there is anything that needs to be done in this case, it is the fun and complete implementation of this Court's final and executory decision. PREMISES CONSIDERED, We hereby enjoin the respondent NLRC to fully implement this Court's Resolution dated October 27,1983, with these modifications: (a) To pay members of the petitioner the partial backwages in the amount of P695,413.17 plus legal interest computed from the time the decision became final (October 21, 1981) until fully paid, with 10% thereof to be deducted as attorney's fees payable to the Menzon Law Office, less the amount that respondent company may have paid to some members of the petitioner union; and (b) The BPPAWU Atty. Luis D. Flores and respondent Philippine Apparel, Inc. are hereby adjudged guilty of contempt and are ordered to pay TEN THOUSAND (P10,000.00) PESOS each within ten (10) days from notice thereof. This resolution is immediately executory. SO ORDERED. Yap (Chairman), Melencio-Herrera, Padilla and Sarmiento JJ., concur.

...The judgment in this case has already become final and executory and as such the prevailing party as a matter of right is entitled to a writ of execution. What seems to be the problem in this case is that execution of the judgment cannot be had at the earliest possible time, since a computation of the amount due the members of petitioner must first be undertaken. The

G.R. No. 121158 December 5, 1996

CHINA BANKING CORPORATION, ATTYS. REYNALDO M. CABUSORA and RENATO C. TAGUIAM, petitioners, vs. COURT OF APPEALS, HON. PEDRO T. SANTIAGO, SPS. SO CHING and CRISTINA SO, and NATIVE WEST INTERNATIONAL TRADING CORP., respondents. FRANCISCO, J.:p China Banking Corporation (China Bank) extended several loans to Native West International Trading Corporation (Native West) and to So Ching, Native West's president. Native West in turn executed promissory notes 1 in favor of China Bank. So Ching, with the marital consent of his wife, Cristina So, additionally executed two mortgages over their properties, viz., a real estate mortgage executed on July 27, 1989 covering a parcel of land situated in Cubao, Quezon City, under TCT No. 277797 2, and another executed on August 10, 1989 covering a parcel of land located in Mandaluyong, under TCT No. 5363. 3 The promissory notes matured and despite due demands by China Bank neither private respondents Native West nor So Ching paid. Pursuant to a provision embodied in the two mortgage contracts, China Bank filed petitions for the extra-judicial foreclosure of the mortgaged properties before Notary Public Atty. Renato E. Taguiam for TCT No. 277797, 4 and Notary Public Atty. Reynaldo M. Cabusora for TCT No. 5363, 5 copies of which were given to the spouses So Ching and Cristina So. After due notice and publication, the notaries public scheduled the foreclosure sale of the spouses' real estate properties on April 13, 1993. Eight days before the foreclosure sale, however, private respondents filed a complaint 6 with the Regional Trial Court 7 for accounting with damages and with temporary restraining order against petitioners alleging the following causes of action: A. Defendants failed to comply with the mandates of Administrative Order No. 3 of the Supreme Court dated October 19, 1984. B. Defendants failed to comply with the mandates of Section 2 Presidential Decree No. 1079 dated January 28, 1977. C. MORTGAGORS liability limited to P6,500,000.00 and P3,500,000.00 respectively in the Mortgages Annexes A and B respectively, but the same are not included in the notice of foreclosure. D. Violation of Truth in Lending Act (RP Act No. 3765). E. In all the loans granted by DEFENDANT-BANK to plaintiffs and Borrowers, the Bank charged interests in excess of the rate allowed by the Central Bank. F. Violation of Article 1308 of the Civil Code. 8 On April 7, 1993, the trial court issued a temporary restraining order to enjoin the foreclosure sale. Thereafter counsels for the respective parties agreed to file their pleadings and to submit the case, without further hearing, for resolution. On April 28, 1993, the trial court, without passing upon the material averments of the complaint, issued an Order granting the private respondents' prayer for the issuance of preliminary injunction with the following proffered justification: From the foregoing, it is quite apparent that a question of accounting poses a thorny issue as between the litigants. Variance in the amounts involved relating to the loan agreements must be judiciously passed upon by the Court and this is only possible if a trial on the merits could be had as the matters appurtenant thereto are evidentiary in nature. Under the premises, the accounting issue being evidentiary in character calls for an issuance of a writ of preliminary injunction pending the adjudication of the case. The issuance thereof at this particular stage of the case is merely a preventive remedy designed to protect from irreparable injury to property or other rights plaintiff may suffer, which a court of equity may take cognizance of by commanding acts to be done or prohibiting their commission, as in the instant suit, to restrain notaries public Cabusora and Taguiam as well as defendant China Banking Corporation from continuing with the auction sale of the subject properties, until further orders from this Court. Wherefore, premises considered, finding that the circumstances warrant the issuance of a preliminary injunction, plaintiff's prayer is hereby GRANTED. Consequent thereto, plaintiffs are hereby ordered to post a bond amounting to P1 (ONE) Million to answer for whatever damages defendant may suffer as a consequence of the writ. 9

Petitioners moved for reconsideration, but it was denied in an Order dated September 23, 1993. To annul the trial court's Orders of April 28, 1993 and September 23, 1993, petitioners elevated the case through certiorari and prohibition 10 before public respondent Court of Appeals. 11 In a decision dated January 17, 1995, respondent Court of Appeals held that Administrative Circular No. 3 is the governing rule in extra-judicial foreclosure of mortgage, which circular petitioners however failed to follow, and with respect to the publication of the notice of the auction sale, the provisions of P.D. No. 1079 is the applicable statute, 12 which decree petitioners similarly failed to obey. Respondent Court of Appeals did not pass upon the other issues and confined its additional lengthy discussion on the validity of the trial court's issuance of the preliminary injunction, finding the same neither capricious nor whimsical exercise of judgment that could amount to grave abuse of discretion. 13 The Court of Appeals accordingly dismissed the petition, as well as petitioners' subsequent motion for reconsideration. 14 Hence, the instant petition under Rule 45 of the Rules of Court reiterating the grounds raised before respondent court, to wit: I. PETITIONER CBC'S PETITIONS TO EXTRAJUDICIALLY FORECLOSE THE REAL ESTATE MORTGAGES OF JULY 27, 1989 AND AUGUST 10, 1989 THRU PETITIONERS-NOTARIES PUBLIC, AND THE SCHEDULED FORECLOSURE SALE ARE VALID AND LAWFUL; II. PRIVATE RESPONDENTS AND PETITIONER CBC HAD EXPRESSLY AGREED TO CONSIDER THE SAME MORTGAGES AS VALID SECURITIES FOR PROMPT AND FULL PAYMENT OF ALL AND ANY OBLIGATIONS OF THE FORMER FROM THE LATTER; III. THE SUPPOSED VARIANCE IN THE TOTAL AMOUNT OF UNPAID LOANS IS NOT A VALID BASIS TO ENJOIN THE FORECLOSURE OF THE QUESTIONED MORTGAGES. THE MERE FAILURE TO PAY THE LOAN SECURED BY SAID MORTGAGES IS THE ONLY, SINGLE REASON FOR THEIR LAWFUL FORECLOSURE;.

IV. PETITIONER BANK HAD FURNISHED PRIVATE RESPONDENTS WITH COPIES OF DISCLOSURE STATEMENTS IN COMPLIANCE WITH THE TRUTH IN LENDING ACT, AND CHARGED THEM INTERESTS IN ACCORDANCE WITH LAW AND PURSUANT TO ITS EXPRESS AGREEMENT WITH THE LATTER; V. THE P1.0 MILLION INJUNCTION BOND REQUIRED BY THE HONORABLE COURT A QUO ON PRIVATE RESPONDENTS IS GROSSLY AND PATENTLY INADEQUATE. 15 At the outset, the Court's attention is drawn to the fact that since the filing of this suit before the trial court, none of the substantial issues have been resolved. To avoid and gloss over the issues raised by the parties, as what the trial court and respondent Court of Appeals did, would unduly prolong this litigation involving a rather simple case of foreclosure of mortgage. Undoubtedly, this will run counter to the avowed purpose of the rules, i.e., to assist the parties in obtaining just, speedy and inexpensive determination of every action or proceeding. 16 The Court, therefore, feels that the central issues of the case, albeit unresolved by the courts below, should now be settled specially as they involved pure questions of law. Furthermore, the pleadings of the respective parties on file have amply ventilated their various positions and arguments on the matter necessitating prompt adjudication. Now to the core issues. As the Court sees it, the crucial issues are: (1) whether or not the loans in excess of the amounts expressly stated in the mortgage contracts can be included as part of the loans secured by the real estate mortgages, (2) whether or not petitioners can extra-judicially foreclose the properties subject of the mortgages, (3) whether or not Administrative Order No. 3 should govern the extra-judicial foreclosure of the properties, and (4) whether or not the writ of preliminary injunction issued by the trial court is valid. Petitioners aver that the additional loans extended in favor of private respondents in excess of P6,500,000.00 and P3,500,000.00 amounts respectively stipulated in the July 27, 1989 and August 10, 1989 mortgage contracts are also secured by the same collaterals or real estate properties, citing as bases the introductory paragraph ("whereas clause") of the mortgage contracts, as well as the stipulations stated therein under the first and second paragraphs. Private respondents for

their part argue that the additional loans are clean loans, relying on some isolated parts of the same introductory paragraph and first paragraph of the contracts, and also of the third paragraph. As both parties offered a conflicting interpretation of the contract, then judicial determination of the parties' intention is thus, inevitable. 17 Hereunder are the pertinent identical introductory paragraphs and paragraphs 1 to 3 of the July 27, 1989 and August 10, 1989 mortgage contracts: WHEREAS, the MORTGAGEE has granted, and may from time to time hereafter grant to the MORTGAGOR(S)/either of them/and/or NATIVE WEST INTERNATIONAL TRADING CORP. hereinafter called the DEBTOR(S) credit facilities not exceeding SIX MILLION FIVE HUNDRED THOUSAND PESOS ONLY (P6,500,000.00)* Philippine currency, and the MORTGAGEE had required the MORTGAGOR(S) to give collateral security for the payment of any and all obligations heretofore contracted/incurred and which may thereafter be contracted/incurred by the MORTGAGOR(S) and/or DEBTOR(S), or any one of them, in favor of the MORTGAGEE; NOW, THEREFORE, as collateral security for the payment of the principal and interest of the indebtedness/obligations herein referred to and the faithful performance by the MORTGAGOR(S) of his (her, its) obligations hereunder, the MORTGAGOR(S) hereby execute(s) a FIRST MORTGAGE, in favor of the MORTGAGEE, free from all liens and encumbrances of any kind, that (those) certain parcel(s) of land, together with all the buildings/machineries/equipment improvements now existing thereon, and which may hereafter be placed thereon, described in the Schedule of mortgaged properties described hereunder and/or which is hereto attached, marked Exhibit "A" and made a part thereof. 1. It is agreed that this mortgage shall respond for all the obligations contracted/incurred by the MORTGAGOR(S) and/or DEBTOR(S) or any one of them, in favor of the MORTGAGEE up to the said sum of SIX MILLION FIVE HUNDRED THOUSAND PESOS ONLY (P6,500,000.00)* regardless of the manner in which the said obligations may have been contracted/incurred by the MORTGAGOR(S) and/or DEBTOR(S) whether by advances or loans made to him (her, it) by the MORTGAGEE, by the negotiation of mercantile documents, including trust receipts, by the execution by the MORTGAGOR(S) and/or DEBTOR(S) of money market instruments/commercial papers, undertakings of guaranty of suretyship, or by endorsement of negotiable instruments, or otherwise, the idea being to make this deed a comprehensive and all embracing security that it is. 2. Payments on account of the principal and interest of the credit granted by the MORTGAGEE to the MORTGAGOR(S) and/or DEBTOR(S) may be made from time to time, and as often as the MORTGAGOR(S) may elect; provided, however, that in the event of such payments being so made that the indebtedness to the MORTGAGEE may from time to time be reduced the MORTGAGEE may make further advances and all sums whatsoever advanced by the MORTGAGEE shall be secured by this mortgage, and partial payments of said indebtedness from time to time shall not thereby be taken to reduce by the amount of such payments the credit hereby secured. The said credit shall extend to any account which shall, within the said limit of P6,500,000.00* exclusive of interest, be fluctuating and subject to increase or decrease from time to time as the MORTGAGEE may approve, and this mortgage shall stand as security for all indebtedness of the MORTGAGOR(S) and/or DEBTOR(S), or any one of them, at any and all times outstanding, regardless of partial or full payments at any time or times made by the MORTGAGOR(S) and/or DEBTOR(S). 3. It is hereby agreed that the MORTGAGEE may from time to time grant the MORTGAGOR(S)/DEBTOR(S) credit facilities exceeding the amount secured by this mortgage, without affecting the liability of the MORTGAGOR(S) under this mortgage up to the amount stipulated. 18 An important task in contract interpretation is the ascertainment of the intention of the contracting parties which is accomplished by looking at the words they used to project that intention in their contract, i.e., all the words, not just a particular word or two, and words in context, not words standing alone. 19 Indeed, Article 1374 of the Civil Code, states that "the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly." Applying the rule, we find that the parties intent is to constitute the real estate properties as continuing securities liable for future obligations beyond the amounts of P6.5 million and P3.5 million respectively stipulated in the July 27, 1989 and August 10, 1989 mortgage contracts. Thus, while the "whereas" clause initially provides that "the mortgagee has granted, and may from time to time hereafter grant to the mortgagors . . . credit facilities not exceeding six million five hundred thousand pesos only (P6,500,000.00)**" yet in the same clause it provides that "the mortgagee had

required the mortgagor(s) to give collateral security for the payment of any and all obligations heretofore contracted/incurred and which may thereafter be contracted/incurred by the mortgagor(s) and/or debtor(s), or any one of them, in favor of the mortgagee" which qualifies the initial part and shows that the collaterals or real estate properties serve as securities for future obligations. The first paragraph which ends with the clause, "the idea being to make this deed a comprehensive and all embracing security that it is" supports this qualification. Similarly, the second paragraph provides that "the mortgagee may take further advances and all sums whatsoever advanced by the mortgagee shall be secured by this mortgagee . . ." And although it was stated that "[t]he said credit shall extend to any account which shall, within the said limit of P6,500,000.00 exclusive of interest", this part of the second sentence is again qualified by its succeeding portion which provides that "this mortgage shall stand as security for all indebtedness of the mortgagor(s) and/or debtor(s), or any one of them, at any and all times outstanding . . ." Again, under the third paragraph, it is provided that "the mortgagee may from time to time grant the mortgagor(s)/debtor(s) credit facilities exceeding the amount secured by this mortgage . . ." The fourth paragraph, 20 in addition, states that ". . . all such withdrawals, and payments, whether evidenced by promissory notes or otherwise, shall be secured by this mortgage" which manifestly shows that the parties principally intended to constitute the real estate properties as continuing securities for additional advancements which the mortgagee may, upon application, extend. It is well settled that mortgages given to secure future advancements or loans are valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. 21 Anent the second issue, we find that petitioners are entitled to foreclose the mortgages. In their complaint for accounting with damages pending with the trial court, private respondents averred that: 8. Up to and until February, 1993, PLAINTIFF-CORPORATION had paid to the DEFENDANT-BANK, the amount of THREE HUNDRED FIFTY THOUSAND (P350,000.00) Pesos, Philippine Currency, and was willing to pay the balance in installments of FOUR HUNDRED THOUSAND (P400,000.00) Pesos, Philippine Currency, every month, in the meantime, but the DEFENDANT-BANK refused to accept, demanding instead SEVEN HUNDRED MILLION (P700,000,000.00) Pesos, Philippine Currency, a month. 9. Inspite of the expressed willingness and commitment of plaintiffs to pay their obligation in a manner which they could afford, on March 11, 1993, MORTGAGORS and DEFENDANT-CORPORATION, each received a Letter of Demand from DEFENDANT-BANK, for the payment of P28,775,615.14 exclusive of interest and penalty evidenced by 11 promissory notes enclosed therein . . . . 10. Upon receipt of the letter, PLAINTIFF-CORPORATION through its President pleaded with the Chairman of the Board of the DEFENDANT-BANK, through whom Defendant-Corporation was transacting business with, to accept its offer of payment of FOUR HUNDRED THOUSAND (P400,000.00) Pesos, Philippine Currency, a month, in the meantime, which was again refused by the said Chairman. 22 which allegations are a clear admission that they were unable to settle to the fullest their obligation. Foreclosure is valid where the debtors, as in this case, are in default in the payment of their obligation. 23 The essence of a contract of mortgage indebtedness is that a property has been identified or set apart from the mass of the property of the debtor-mortgagor as security for the payment of money or the fulfillment of an obligation to answer the amount of indebtedness, in case of default of payment. 24 It is a settled rule that in a real estate mortgage when the obligation is not paid when due, the mortgagee has the right to foreclose the mortgage and to have the property seized and sold in view of applying the proceeds to the payment of the obligation. 25 In fact, aside from the mortgage contracts, the promissory notes executed to evidence the loans also authorize the mortgagee to foreclose on the mortgages. Thus: . . . CHINA BANKING CORPORATION is hereby authorized to sell at public or private sales such securities or things of value for the purpose of applying their proceeds to such payments. 26 And while private respondents aver that they have already paid ten million pesos, an allegation which has still to be settled before the trial court, the same cannot be utilized as a shield to enjoin the foreclosure sale. A mortgage given to secure

advancements, we repeat, is a continuing security and is not discharged by repayment of the amount named in the mortgage, until the full amount of the advancements are paid. 27 With respect to the third issue, we find private respondents' contention that Administrative Order No. 3 is the governing rule in foreclosure of mortgages misplaced. The parties, we note, have stipulated that the provisions of Act No. 3135 is the controlling law in case of foreclosure. Thus: 17. The MORTGAGOR(S) hereby grant(s) unto the MORTGAGEE full and irrevocable power of attorney coupled with interest, in the event of breach of any of the conditions of this mortgage, to sell, in its discretion, the mortgaged properties at public auction, for cash and to the highest bidder, in the Province or City where the mortgaged properties are located, before the Sheriff, or a Notary Public, without court proceedings, after posting notices of sale for a period of twenty days in three public places in said place; and after publication of such notice in a newspaper of general circulation in the said place once a week, for three consecutive weeks, and the MORTGAGEE is hereby authorized to execute the deed of sale and all such other documents as may be necessary in the premises all in accordance with the provisions of Act No. 3135 of the Philippine Legislature, as amended, and Section 78 of Republic Act No. 337: . . . 28 (Emphasis supplied.) By invoking the said Act, there is no doubt that it must "govern the manner in which the sale and redemption shall be effected." 29 Clearly, the fundamental principle that contracts are respected as the law between the contracting parties finds application in the present case, 30 specially where they are not contrary to law, morals, good customs and public policy. Moreover, Administrative Order No. 3 is a directive for executive judges and clerks of courts which, under its preliminary paragraph, is "[i]n line with the responsibility of an Executive Judge, under Administrative Order No. 6, dated June 30, 1975, for the management of courts within his administrative area, included in which is the task of supervising directly the work of the Clerk of Court, who is also the Ex-Oficio Sheriff, and his staff, . . . ." Surely, a petition for foreclosure with the notary public is not within the contemplation of the aforesaid directive as the same is not filed with the court. At any rate, Administrative Order No. 3 cannot prevail over Act No. 3135, as amended. It is an elementary principle in statutory construction that a statute is superior to an administrative directive and the former cannot be repealed or amended by the latter. On the last issue, we find that the issuance of the writ of injunction by the trial court unjustified. A writ of preliminary injunction, as an ancillary or preventive remedy, may only be resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the pendency of the principal action. 31 But before a writ of preliminary injunction may be issued, there must be a clear showing by the complaint that there exists a right to be protected and that the acts against which the writ is to be directed are violative of the said right. 32 In the case at bench, we fail to see any reason why the foreclosure of the mortgages should be enjoined. On the face of the clear admission by private respondents that they were unable to settle their obligations which were secured by the mortgages, petitioners have a clear right to foreclose the mortgages which is a remedy provided by law. Thus, in Caltex Philippines, Inc. v. Intermediate Appellate Court, 33 we reiterated the rule that: . . . where a debt is secured by a mortgage and there is a default in payment on the part of the mortgagor, the mortgagee has a choice of one (1) or two (2) remedies, but he cannot have both. The mortgagee may: 1) foreclosure the mortgage; or 2) file an ordinary action to collect the debt. When the mortgagee chooses the foreclosure of the mortgage as a remedy, he enforces his lien by the sale on foreclosure of the mortgaged property. The proceeds of the sale will be applied to the satisfaction of the debt. With this remedy, he has a prior lien on the property. In case of a deficiency, the mortgagee has the right to claim for the deficiency resulting from the price obtained in the sale of the real property at public auction and the outstanding obligation at the time of the foreclosure proceedings (Soriano v. Enriquez, 24 Phil 584; Banco de Islas Filipinas v. Concepcion Hijos, 53 Phil 86; Banco Nacional v. Barreto, 53 Phil 101). On the other hand, if the mortgagee resorts to an action to collect the debt, he thereby waives his mortgage lien. He will have no more priority over the mortgaged property. If the judgment in the action to collect is favorable to him, and it becomes final and executory, he can enforce said judgment by execution. He can even levy execution on the same mortgaged property, but

he will not have priority over the latter and there may be other creditors who have better lien on the properties of the mortgagor. 34 WHEREFORE, the instant petition is hereby GRANTED. The assailed Decision, as well as the Resolution, of the Court of Appeals dated January 17, 1995 and July 7, 1995, respectively, are hereby REVERSED and SET ASIDE. The preliminary writ of injunction issued by the trial court is hereby NULLIFIED. This case is REMANDED to the court of origin for further proceedings in conformity with this decision. SO ORDERED. Narvasa, C.J., Davide, Jr., Melo and Panganiban, JJ., concur. G.R. No. 111238 January 25, 1995 ADELFA PROPERTIES, INC., petitioner, vs. COURT OF APPEALS, ROSARIO JIMENEZ-CASTAEDA and SALUD JIMENEZ, respondents. REGALADO, J.: The main issues presented for resolution in this petition for review on certiorari of the judgment of respondent Court of appeals, dated April 6, 1993, in CA-G.R. CV No. 34767 1 are (1) whether of not the "Exclusive Option to Purchase" executed between petitioner Adelfa Properties, Inc. and private respondents Rosario Jimenez-Castaeda and Salud Jimenez is an option contract; and (2) whether or not there was a valid suspension of payment of the purchase price by said petitioner, and the legal effects thereof on the contractual relations of the parties. The records disclose the following antecedent facts which culminated in the present appellate review, to wit: 1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the registered co-owners of a parcel of land consisting of 17,710 square meters, covered by Transfer Certificate of Title (TCT) No. 309773, 2 situated in Barrio Culasi, Las Pias, Metro Manila. 2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan ng Lupa." 3 Subsequently, a "Confirmatory Extrajudicial Partition Agreement" 4 was executed by the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 square meters was adjudicated to Jose and Dominador Jimenez, while the western portion was allocated to herein private respondents. 3. Thereafter, herein petitioner expressed interest in buying the western portion of the property from private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase" 5 was executed between petitioner and private respondents, under the following terms and conditions: 1. The selling price of said 8,655 square meters of the subject property is TWO MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS ONLY (P2,856,150.00) 2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC. as an option money shall be credited as partial payment upon the consummation of the sale and the balance in the sum of TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00) to be paid on or before November 30, 1989; 3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in accordance with paragraph 2 hereof, this option shall be cancelled and 50% of the option money to be forfeited in our favor and we will refund the remaining 50% of said money upon the sale of said property to a third party; 4. All expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the VENDORS, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of ADELFA PROPERTIES, INC.

Considering, however, that the owner's copy of the certificate of title issued to respondent Salud Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said certificate of title was filed in court through Atty. Bayani L. Bernardo, who acted as private respondents' counsel. Eventually, a new owner's copy of the certificate of title was issued but it remained in the possession of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc. 4. Before petitioner could make payment, it received summons 6 on November 29, 1989, together with a copy of a complaint filed by the nephews and nieces of private respondents against the latter, Jose and Dominador Jimenez, and herein petitioner in the Regional Trial Court of Makati, docketed as Civil Case No. 89-5541, for annulment of the deed of sale in favor of Household Corporation and recovery of ownership of the property covered by TCT No. 309773. 7 5. As a consequence, in a letter dated November 29, 1989, petitioner informed private respondents that it would hold payment of the full purchase price and suggested that private respondents settle the case with their nephews and nieces, adding that ". . . if possible, although November 30, 1989 is a holiday, we will be waiting for you and said plaintiffs at our office up to 7:00 p.m." 8 Another letter of the same tenor and of even date was sent by petitioner to Jose and Dominador Jimenez. 9 Respondent Salud Jimenez refused to heed the suggestion of petitioner and attributed the suspension of payment of the purchase price to "lack of word of honor." 6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract with private respondents, and its contract of sale with Jose and Dominador Jimenez, as Entry No. 1437-4 and entry No. 1438-4, respectively. 7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in his capacity as petitioner's counsel, and to inform the latter that they were cancelling the transaction. In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be deducted therefrom for the settlement of the civil case. This was rejected by private respondents. On December 22, 1989, Atty. Bernardo wrote private respondents on the same matter but this time reducing the amount from P500,000.00 to P300,000.00, and this was also rejected by the latter. 8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541. Thus, on February 28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the exclusive option to purchase as Entry No. 4442-4. 9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional Sale 10 in favor of Emylene Chua over the same parcel of land for P3,029,250, of which P1,500,000.00 was paid to private respondents on said date, with the balance to be paid upon the transfer of title to the specified one-half portion. 10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of the dismissal of the case against them, petitioner was willing to pay the purchase price, and he requested that the corresponding deed of absolute sale be executed. 11 This was ignored by private respondents. 11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a check for P25,000.00 representing the refund of fifty percent of the option money paid under the exclusive option to purchase. Private respondents then requested petitioner to return the owner's duplicate copy of the certificate of title of respondent Salud Jimenez. 12 Petitioner failed to surrender the certificate of title, hence private respondents filed Civil Case No. 7532 in the Regional Trial Court of Pasay City, Branch 113, for annulment of contract with damages, praying, among others, that the exclusive option to purchase be declared null and void; that defendant, herein petitioner, be ordered to return the owner's duplicate certificate of title; and that the annotation of the option contract on TCT No. 309773 be cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a complaint in intervention. 12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the agreement entered into by the parties was merely an option contract, and declaring that the suspension of payment by herein petitioner constituted a counter-offer which, therefore, was tantamount to a rejection of the option. It likewise ruled that herein petitioner could not validly suspend payment in favor of private respondents on the ground that the vindicatory action filed by the latter's kin did not involve the western portion of the land covered by the contract between petitioner and private respondents, but the eastern portion thereof which was the subject of the sale between petitioner and the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation of the exclusive option to purchase, declared the sale to intervenor Emylene Chua as valid and binding, and ordered petitioner to pay damages and attorney's fees to private respondents, with costs.

13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a quo and held that the failure of petitioner to pay the purchase price within the period agreed upon was tantamount to an election by petitioner not to buy the property; that the suspension of payment constituted an imposition of a condition which was actually a counter-offer amounting to a rejection of the option; and that Article 1590 of the Civil Code on suspension of payments applies only to a contract of sale or a contract to sell, but not to an option contract which it opined was the nature of the document subject of the case at bar. Said appellate court similarly upheld the validity of the deed of conditional sale executed by private respondents in favor of intervenor Emylene Chua. In the present petition, the following assignment of errors are raised: 1. Respondent court of appeals acted with grave abuse of discretion in making its finding that the agreement entered into by petitioner and private respondents was strictly an option contract; 2. Granting arguendo that the agreement was an option contract, respondent court of Appeals acted with grave abuse of discretion in grievously failing to consider that while the option period had not lapsed, private respondents could not unilaterally and prematurely terminate the option period; 3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate fully the attendant facts and circumstances when it made the conclusion of law that Article 1590 does not apply; and 4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the sale in favor of appellee Ma. Emylene Chua and the award of damages and attorney's fees which are not only excessive, but also without in fact and in law. 14 An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads to the conclusion that the agreement between the parties is a contract to sell, and not an option contract or a contract of sale. I. 1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at this juncture to briefly discourse on the rationale behind our treatment of the alleged option contract as a contract to sell, rather than a contract of sale. The distinction between the two is important for in contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. 15 There are two features which convince us that the parties never intended to transfer ownership to petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to purchase, although it provided for automatic rescission of the contract and partial forfeiture of the amount already paid in case of default, does not mention that petitioner is obliged to return possession or ownership of the property as a consequence of non-payment. There is no stipulation anent reversion or reconveyance of the property to herein private respondents in the event that petitioner does not comply with its obligation. With the absence of such a stipulation, although there is a provision on the remedies available to the parties in case of breach, it may legally be inferred that the parties never intended to transfer ownership to the petitioner to completion of payment of the purchase price. In effect, there was an implied agreement that ownership shall not pass to the purchaser until he had fully paid the price. Article 1478 of the civil code does not require that such a stipulation be expressly made. Consequently, an implied stipulation to that effect is considered valid and, therefore, binding and enforceable between the parties. It should be noted that under the law and jurisprudence, a contract which contains this kind of stipulation is considered a contract to sell.

Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is bolstered by the fact that the deed of absolute sale would have been issued only upon the payment of the balance of the purchase price, as may be gleaned from petitioner's letter dated April 16, 1990 16 wherein it informed private respondents that it "is now ready and willing to pay you simultaneously with the execution of the corresponding deed of absolute sale." Secondly, it has not been shown there was delivery of the property, actual or constructive, made to herein petitioner. The exclusive option to purchase is not contained in a public instrument the execution of which would have been considered equivalent to delivery. 17 Neither did petitioner take actual, physical possession of the property at any given time. It is true that after the reconstitution of private respondents' certificate of title, it remained in the possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally, under the law, such possession by the vendee is to be understood as a delivery. 18 However, private respondents explained that there was really no intention on their part to deliver the title to herein petitioner with the purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of the title only because he was their counsel in the petition for reconstitution. We have no reason not to believe this explanation of private respondents, aside from the fact that such contention was never refuted or contradicted by petitioner. 2. Irrefragably, the controverted document should legally be considered as a perfected contract to sell. On this particular point, therefore, we reject the position and ratiocination of respondent Court of Appeals which, while awarding the correct relief to private respondents, categorized the instrument as "strictly an option contract." The important task in contract interpretation is always the ascertainment of the intention of the contracting parties and that task is, of course, to be discharged by looking to the words they used to project that intention in their contract, all the words not just a particular word or two, and words in context not words standing alone. 19 Moreover, judging from the subsequent acts of the parties which will hereinafter be discussed, it is undeniable that the intention of the parties was to enter into a contract to sell. 20 In addition, the title of a contract does not necessarily determine its true nature. 21 Hence, the fact that the document under discussion is entitled "Exclusive Option to Purchase" is not controlling where the text thereof shows that it is a contract to sell. An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An option is not of itself a purchase, but merely secures the privilege to buy. 22 It is not a sale of property but a sale of property but a sale of the right to purchase. 23 It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, that it is, the right or privilege to buy at the election or option of the other party. 24 Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms. 25 On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons whereby one binds himself, with respect to the other, to give something or to render some service. 26 Contracts, in general, are perfected by mere consent, 27 which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. 28 The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It states the terms and conditions on which the owner is willing to sell the land, if the holder elects to accept them within the time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both parties at the time of its execution. The offer and the acceptance are concurrent, since the minds of the contracting parties meet in the terms of the agreement. 29

A perusal of the contract in this case, as well as the oral and documentary evidence presented by the parties, readily shows that there is indeed a concurrence of petitioner's offer to buy and private respondents' acceptance thereof. The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal or an informal manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale. 30 The records also show that private respondents accepted the offer of petitioner to buy their property under the terms of their contract. At the time petitioner made its offer, private respondents suggested that their transfer certificate of title be first reconstituted, to which petitioner agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private respondents in filing a petition for reconstitution. After the title was reconstituted, the parties agreed that petitioner would pay either in cash or manager's check the amount of P2,856,150.00 for the lot. Petitioner was supposed to pay the same on November 25, 1989, but it later offered to make a down payment of P50,000.00, with the balance of P2,806,150.00 to be paid on or before November 30, 1989. Private respondents agreed to the counter-offer made by petitioner. 31 As a result, the so-called exclusive option to purchase was prepared by petitioner and was subsequently signed by private respondents, thereby creating a perfected contract to sell between them. It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while the acceptance thereof was absolute and without any condition or qualification. The agreement as to the object, the price of the property, and the terms of payment was clear and well-defined. No other significance could be given to such acts that than they were meant to finalize and perfect the transaction. The parties even went beyond the basic requirements of the law by stipulating that "all expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the vendors, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of Adelfa properties, Inc." Hence, there was nothing left to be done except the performance of the respective obligations of the parties. We do not subscribe to private respondents' submission, which was upheld by both the trial court and respondent court of appeals, that the offer of petitioner to deduct P500,000.00, (later reduced to P300,000.00) from the purchase price for the settlement of the civil case was tantamount to a counter-offer. It must be stressed that there already existed a perfected contract between the parties at the time the alleged counter-offer was made. Thus, any new offer by a party becomes binding only when it is accepted by the other. In the case of private respondents, they actually refused to concur in said offer of petitioner, by reason of which the original terms of the contract continued to be enforceable. At any rate, the same cannot be considered a counter-offer for the simple reason that petitioner's sole purpose was to settle the civil case in order that it could already comply with its obligation. In fact, it was even indicative of a desire by petitioner to immediately comply therewith, except that it was being prevented from doing so because of the filing of the civil case which, it believed in good faith, rendered compliance improbable at that time. In addition, no inference can be drawn from that suggestion given by petitioner that it was totally abandoning the original contract. More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase price within the agreed period was attributed by private respondents to "lack of word of honor" on the part of the former. The reason of "lack of word of honor" is to us a clear indication that private respondents considered petitioner already bound by its obligation to pay the balance of the consideration. In effect, private respondents were demanding or exacting fulfillment of the obligation from herein petitioner. with the arrival of the period agreed upon by the parties, petitioner was supposed to comply with the obligation incumbent upon it to perform, not merely to exercise an option or a right to buy the property. The obligation of petitioner on November 30, 1993 consisted of an obligation to give something, that is, the payment of the purchase price. The contract did not simply give petitioner the discretion to pay for the property. 32 It will be noted that there is nothing in the said contract to show that petitioner was merely given a certain period within which to exercise its privilege to buy. The agreed period was intended to give time to herein petitioner within which to fulfill and comply with its obligation, that is, to pay the balance of the purchase price. No evidence was presented by private respondents to prove otherwise. The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is whether or not the agreement could be specifically enforced. 33 There is no doubt that the obligation of petitioner to pay the purchase price is

specific, definite and certain, and consequently binding and enforceable. Had private respondents chosen to enforce the contract, they could have specifically compelled petitioner to pay the balance of P2,806,150.00. This is distinctly made manifest in the contract itself as an integral stipulation, compliance with which could legally and definitely be demanded from petitioner as a consequence. This is not a case where no right is as yet created nor an obligation declared, as where something further remains to be done before the buyer and seller obligate themselves. 34 An agreement is only an "option" when no obligation rests on the party to make any payment except such as may be agreed on between the parties as consideration to support the option until he has made up his mind within the time specified. 35 An option, and not a contract to purchase, is effected by an agreement to sell real estate for payments to be made within specified time and providing forfeiture of money paid upon failure to make payment, where the purchaser does not agree to purchase, to make payment, or to bind himself in any way other than the forfeiture of the payments made. 36 As hereinbefore discussed, this is not the situation obtaining in the case at bar. While there is jurisprudence to the effect that a contract which provides that the initial payment shall be totally forfeited in case of default in payment is to be considered as an option contract, 37 still we are not inclined to conform with the findings of respondent court and the court a quo that the contract executed between the parties is an option contract, for the reason that the parties were already contemplating the payment of the balance of the purchase price, and were not merely quoting an agreed value for the property. The term "balance," connotes a remainder or something remaining from the original total sum already agreed upon. In other words, the alleged option money of P50,000.00 was actually earnest money which was intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory rule that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. 38 It constitutes an advance payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain. There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the purchase price, while option money ids the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy. 39 The aforequoted characteristics of earnest money are apparent in the so-called option contract under review, even though it was called "option money" by the parties. In addition, private respondents failed to show that the payment of the balance of the purchase price was only a condition precedent to the acceptance of the offer or to the exercise of the right to buy. On the contrary, it has been sufficiently established that such payment was but an element of the performance of petitioner's obligation under the contract to sell. 40 II 1. This brings us to the second issue as to whether or not there was valid suspension of payment of the purchase price by petitioner and the legal consequences thereof. To justify its failure to pay the purchase price within the agreed period, petitioner invokes Article 1590 of the civil Code which provides: Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price. Respondent court refused to apply the aforequoted provision of law on the erroneous assumption that the true agreement between the parties was a contract of option. As we have hereinbefore discussed, it was not an option contract but a perfected contract to sell. Verily, therefore, Article 1590 would properly apply.

Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the parties herein involved only the eastern half of the land subject of the deed of sale between petitioner and the Jimenez brothers, it did not, therefore, have any adverse effect on private respondents' title and ownership over the western half of the land which is covered by the contract subject of the present case. We have gone over the complaint for recovery of ownership filed in said case 41 and we are not persuaded by the factual findings made by said courts. At a glance, it is easily discernible that, although the complaint prayed for the annulment only of the contract of sale executed between petitioner and the Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs' share in that parcel of land specifically covered by TCT No. 309773. In other words, the plaintiffs therein were claiming to be co-owners of the entire parcel of land described in TCT No. 309773, and not only of a portion thereof nor, as incorrectly interpreted by the lower courts, did their claim pertain exclusively to the eastern half adjudicated to the Jimenez brothers. Such being the case, petitioner was justified in suspending payment of the balance of the purchase price by reason of the aforesaid vindicatory action filed against it. The assurance made by private respondents that petitioner did not have to worry about the case because it was pure and simple harassment 42 is not the kind of guaranty contemplated under the exceptive clause in Article 1590 wherein the vendor is bound to make payment even with the existence of a vindicatory action if the vendee should give a security for the return of the price. 2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and hold that private respondents may no longer be compelled to sell and deliver the subject property to petitioner for two reasons, that is, petitioner's failure to duly effect the consignation of the purchase price after the disturbance had ceased; and, secondarily, the fact that the contract to sell had been validly rescinded by private respondents. The records of this case reveal that as early as February 28, 1990 when petitioner caused its exclusive option to be annotated anew on the certificate of title, it already knew of the dismissal of civil Case No. 89-5541. However, it was only on April 16, 1990 that petitioner, through its counsel, wrote private respondents expressing its willingness to pay the balance of the purchase price upon the execution of the corresponding deed of absolute sale. At most, that was merely a notice to pay. There was no proper tender of payment nor consignation in this case as required by law. The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not considered a valid tender of payment. 43 Besides, a mere tender of payment is not sufficient to compel private respondents to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish petitioner's obligation to pay the balance of the purchase price. 44 The rule is different in case of an option contract 45 or in legal redemption or in a sale with right to repurchase, 46 wherein consignation is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or repurchase) rather than the discharge of an obligation, hence tender of payment would be sufficient to preserve the right or privilege. This is because the provisions on consignation are not applicable when there is no obligation to pay. 47 A contract to sell, as in the case before us, involves the performance of an obligation, not merely the exercise of a privilege of a right. consequently, performance or payment may be effected not by tender of payment alone but by both tender and consignation. Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the balance again arose and resumed after it received notice of such dismissal. Unfortunately, petitioner failed to seasonably make payment, as in fact it has deposit the money with the trial court when this case was originally filed therein. By reason of petitioner's failure to comply with its obligation, private respondents elected to resort to and did announce the rescission of the contract through its letter to petitioner dated July 27, 1990. That written notice of rescission is deemed sufficient under the circumstances. Article 1592 of the Civil Code which requires rescission either by judicial action or notarial act is not applicable to a contract to sell. 48 Furthermore, judicial action for rescission of a contract is not necessary where the contract provides for automatic rescission in case of breach, 49 as in the contract involved in the present controversy. We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc. 50 that the right to rescind is not absolute, being ever subject to scrutiny and review by the proper court. It is our considered view, however, that this rule applies to a situation where the extrajudicial rescission is contested by the defaulting party. In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in court. If the debtor impugns the declaration,

it shall be subject to judicial determination 51 otherwise, if said party does not oppose it, the extrajudicial rescission shall have legal effect. 52 In the case at bar, it has been shown that although petitioner was duly furnished and did receive a written notice of rescission which specified the grounds therefore, it failed to reply thereto or protest against it. Its silence thereon suggests an admission of the veracity and validity of private respondents' claim. 53 Furthermore, the initiative of instituting suit was transferred from the rescinder to the defaulter by virtue of the automatic rescission clause in the contract. 54 But then, the records bear out the fact that aside from the lackadaisical manner with which petitioner treated private respondents' latter of cancellation, it utterly failed to seriously seek redress from the court for the enforcement of its alleged rights under the contract. If private respondents had not taken the initiative of filing Civil Case No. 7532, evidently petitioner had no intention to take any legal action to compel specific performance from the former. By such cavalier disregard, it has been effectively estopped from seeking the affirmative relief it now desires but which it had theretofore disdained. WHEREFORE, on the foregoing modificatory premises, and considering that the same result has been reached by respondent Court of Appeals with respect to the relief awarded to private respondents by the court a quo which we find to be correct, its assailed judgment in CA-G.R. CV No. 34767 is hereby AFFIRMED. SO ORDERED. Narvasa, C.J., Puno and Mendoza, JJ., concur. G.R. No. 115307 July 8, 1997 MANUEL LAO, petitioner, vs. COURT OF APPEALS and BETTER HOMES REALTY & HOUSING CORPORATION, respondents. PANGANIBAN, J.: As a general rule, the main issue in an ejectment suit is possession de facto, not possession de jure. In the event the issue of ownership is raised in the pleadings, such issue shall be taken up only for the limited purpose of determining who between the contending parties has the better right to possession. However, where neither of the parties objects to the allegation of the question of ownership which may be initially improvident or improper in an ejectment suit and, instead, both present evidence thereon, argue the question in their various submissions and participate in all aspects of the trial without objecting to the Metropolitan (or Municipal) Trial Court's jurisdiction to decide the question of ownership, the Regional Trial Court in the exercise of its original jurisdiction as authorized by Section 11, Rule 40 of the Rules of Court may rule on the issue and the corollary question of whether the subject deed is one of sale or of equitable mortgage. These postulates are discussed by the Court as it resolves this petition under Rule 45 seeking a reversal of the December 21, 1993 Decision 1 and April 28, 1994 Resolution 2 of the Court of Appeals in CA-G.R. SP No. 92-14293. The Antecedent Facts The facts of this case are narrated by Respondent Court of Appeals as follows: 3 On June 24, 1992, (herein Private Respondent Better Homes Realty and Housing Corporation) filed with the Metropolitan Trial Court of Quezon City, a complaint for unlawful detainer, on the ground that (said private respondent) is the owner of the premises situated at Unit I, No. 21 N. Domingo Street, Quezon City, evidenced by Transfer Certificate of Title No. 22184 of the Registry of Deeds of Quezon City; that (herein Petitioner Manuel Lao) occupied the property without rent, but on (private respondent's) pure liberality with the understanding that he would vacate the property upon demand, but despite demand to vacate made by letter received by (herein petitioner) on February 5, 1992, the (herein petitioner) refused to vacate the premises. In his answer to the complaint, (herein petitioner) claimed that he is the true owner of the house and lot located at Unit I, No. 21 N. Domingo Street, Quezon City; that the (herein private respondent) purchased the same from N. Domingo Realty and Development Corporation but the agreement was actually a loan secured by mortgage; and that plaintiff's cause of action is for accion publiciana, outside the jurisdiction of an inferior court.

On October 9, 1992, the Metropolitan Trial Court of Quezon City rendered judgment ordering the (petitioner) to vacate the premises located at Unit I, No. 21 N. Domingo Street, Quezon City; to pay (private respondent) the sum of P300.00 a day starting on January 31, 1992, as reasonable rent for the use and occupation of the premises; to pay plaintiff P5,000.00, as attorney's fees, and costs. On appeal to the Regional Trial Court of Quezon City, 4 on March 30, 1993, the latter court rendered a decision reversing that of the Metropolitan Trial Court, and ordering the dismissal of the (private respondent's) complaint for lack of merit, with costs taxed against (private respondent). In its decision, the Regional Trial Court held that the subject property was acquired by (private respondent) from N. Domingo Realty and Development Corporation, by a deed of sale, and (private respondent) is now the registered owner under Transfer Certificate of Title No. 316634 of the Registry of Deeds of Quezon City, but in truth the (petitioner) is the beneficial owner of the property because the real transaction over the subject property was not a sale but a loan secured by a mortgage thereon. The dispositive portion of the Regional Trial Court's decision is quoted below: 5 WHEREFORE, judgment is hereby rendered reversing the appealed decision and ordering the dismissal of plaintiffs complaint for lack of merit, with the costs taxed against it. IT IS SO ORDERED. On April 28, 1993, private respondent filed an appeal with the Court of Appeals which reversed the decision of the Regional Trial Court. The Respondent Court ruled: The Metropolitan Trial Court has no jurisdiction to resolve the issue of ownership in an action for unlawful detainer (B.P. 129, Sec. 33 [2]; Cf. Alvir vs. Vera, 130 SCRA 357). The jurisdiction of a court is determined by the nature of the action alleged in the complaint (Ching vs. Malaya, l53 SCRA 412). In its complaint in the inferior court, the plaintiff alleged that it is the owner of the premises located at Unit I, No. 21 N. Domingo Street, Quezon City, and that defendant's occupation is rent free and based on plaintiffs pure liberality coupled with defendant's undertaking to vacate the premises upon demand, but despite demands, defendant has refused to vacate. The foregoing allegations suffice to constitute a cause of action for ejectment (Banco de Oro vs. Court of Appeals, 182 SCRA 464). The Metropolitan Trial Court is not ousted of jurisdiction simply because the defendant raised the question ownership (Bolus vs. Court of Appeals, 218 SCRA 798). The inferior court shall resolve the issue of ownership only to determine who is entitled to the possession of the premises (B.P. 129, Sec. 33[2]; Bolus vs. Court of Appeals, supra). Here, the Metropolitan Trial Court ruled that as owner, plaintiff (herein private respondent Better Homes Realty and Housing Corporation) is entitled to the possession of the premises because the defendant's stay is by mere tolerance of the plaintiff (herein private respondent). On the other hand, the Regional Trial Court ruled that the subject property is owned by the defendant, (herein petitioner Manuel Lao) and, consequently, dismissed the complaint for unlawful detainer. Thus, the Regional Trial Court resolved the issue of ownership, as if the case were originally before it as an action for recovery of possession, or accion publiciana, within its original jurisdiction. In an appeal from a decision of the Municipal Trial Court, or Metropolitan Trial Court, in an unlawful detainer case, the Regional Trial Court is simply to determine whether the inferior court correctly resolved the issue of possession; it shall not delve into the issue of ownership (Manuel vs. Court of Appeals, 199 SCRA 603). What the Regional Trial Court did was to rule that the real agreement between the plaintiff and the previous owner of the property was not a sale, but an equitable mortgage. Defendant was only a director of the seller corporation, and his claim of ownership could not be true. This question could not be determined summarily. It was not properly in issue before the inferior court because, as aforesaid, the only issue was possession de facto (Manlapaz vs. Court of Appeals, 191 SCRA 795), or who has a better right to physical possession (Dalida vs. Court of Appeals, 117 SCRA 480). Consequently, the Regional Trial Court erred in reversing the decision of the Metropolitan Trial Court.

WHEREFORE, the Court hereby REVERSES the decision of the Regional Trial Court. In lieu thereof, We affirm the decision of the Metropolitan Trial Court of Quezon City sentencing the defendant and all persons claiming right under him to vacate the premises situated at Unit I, No. 21 N. Domingo Street, Quezon City, and to surrender possession to the plaintiff; to pay plaintiff the sum of P300.00, a day starting on January 31, 1992, until defendant shall have vacated the premises; to pay plaintiff P5,000.00 as attorneys fees, and costs. SO ORDERED. 6 Manuel Lao's motion for reconsideration dated January 24, 1994 was denied by the Court of Appeals in its Resolution promulgated on April 28, 1994. Hence, this petition for review before this Court. 7 The Issues Petitioner Manuel Lao raises three issues: 3.1 Whether or not the lower court can decide on the issue of ownership in the present ejectment case. 3.2 Whether or not private respondent had acquired ownership over the property in question. 3.3 Whether or not petitioner should be ejected from the premises in question 8 The Court's Ruling The petition for review is meritorious. First Issue: Jurisdiction to Decide the Issue of Ownership The Court of Appeals held that as a general rule, the issue in an ejectment suit is possession de facto, not possession de jure, and that in the event the issue of ownership is raised as a defense, the issue is taken up for the limited purpose of determining who between the contending parties has the better right to possession. Beyond this, the MTC acts in excess of its jurisdiction. However, we hold that this is not a hard and fast rule that can be applied automatically to all unlawful detainer cases. Section 11, Rule 40 of the Rules of Court provides that "[a] case tried by an inferior court without jurisdiction over the subject matter shall be dismissed on appeal by the Court of First Instance. But instead of dismissing the case, the Court of First Instance, in the exercise of its original jurisdiction, may try the case on the merits if the parties therein file their pleadings and go to the trial without any objection to such jurisdiction." After a thorough review of the records of this case, the Court finds that the respondent appellate court failed to apply this Rule and erroneously reversed the RTC Decision. Respondent Court cites Alvir vs. Vera to support its Decision. On the contrary, we believe such case buttresses instead the Regional Trial Court's decision. The cited case involves an unlawful detainer suit where the issue of possession was inseparable from the issue of transfer of ownership, and the latter was determinable only after an examination of a contract of sale involving the property in question. The Court ruled that where a "case was tried and heard by the lower court in the exercise of its original jurisdiction by common assent of the parties by virtue of the issues raised . . . and the proofs presented by them," any dismissal on the ground of lack of jurisdiction "would only lead to needless delays and multiplicity of suits." The Court held: In actions of forcible entry and detainer, the main issue is possession de facto, independently of any claim of ownership or possession de jure that either party may set forth in his pleading. . . . Defendant's claim of ownership of the property from which plaintiff seeks to eject him is not sufficient to divest the inferior court of its jurisdiction over the action of forcible entry and detainer. However, if it appears during the trial that the principal issue relates to the ownership of the property in dispute and any question of possession which maybe involved necessarily depends upon the result of the inquiry into the title, previous rulings of this Court are that the jurisdiction of the municipal or city court is lost and the action should be dismissed. We have at bar a case where, in effect, the question of physical possession could not properly be determined without settling that of lawful or de jure possession and of ownership and hence, following early doctrine, the jurisdiction of the municipal

court over the ejectment case was lost and the action should have been dismissed. As a consequence, respondent court would have no jurisdiction over the case on appeal and it should have dismissed the case on appeal from the municipal trial court. However, in line with Section 11, Rule 40 of the Revised Rules of Court, which reads Sec. 11. Lack of Jurisdiction. A case tried by an inferior court without jurisdiction over the subject matter shall be dismissed on appeal by the Court of First Instance. But instead of dismissing the case, the Court of First Instance in the exercise of its original jurisdiction, may try the case on the merits if the parties therein file their pleadings and go to trial without objection to such jurisdiction. this Court held in Saliwan vs. Amores, 51 SCRA 329, 337, that dismissal "on the said ground of lack of appellate jurisdiction on the part of the lower court flowing from the municipal court's loss of jurisdiction would lead only to needless delay and multiplicity of suits in the attainment of the same result and ignores, as above stated, that the case was tried and heard by the lower court in the exercise of its original jurisdiction by common assent of the parties by virtue of the issues raised by the parties and the proof presented by them thereon." 9 This pronouncement was reiterated by this Court through Mr. Justice Teodoro R. Padilla in Consignado vs. Court of Appeals 10 as follows: As the MTC of Laguna had no jurisdiction over the unlawful detainer case in view of the raised question of title or ownership over the property in dispute, the RTC of Laguna also had no appellate jurisdiction to decide the case on the merits. It should have dismissed the appeal. However, it had original jurisdiction to pass upon the controversy. It is to be noted, in this connection, that in their respective memoranda filed with the RTC of Laguna, the petitioners and private respondents did not object to the said court exercising its original jurisdiction pursuant to the aforequoted provisions of Section 11, Rule 40 of the Rules of Court. xxx xxx xxx Petitioners now contend, among others, that the Court of Appeals erred in resolving the question of ownership as if actual title, not mere possession of subject premises, is involved in the instant case. The petitioner's contention is untenable. Since the MTC and RTC of Laguna decided the question of ownership over the property in dispute, on appeal the Court of Appeals had to review and resolve also the issue of ownership. . . . It is clear, therefore, that although an action for unlawful detainer "is inadequate for the ventilation of issues involving title or ownership of controverted real property, [i]t is more in keeping with procedural due process that where issues of title or ownership are raised in the summary proceedings for unlawful detainer, said proceeding should be dismissed for lack of jurisdiction, unless, in the case of an appeal from the inferior court to the Court of First Instance, the parties agree to the latter Court hearing the case in its original jurisdiction in accordance with Section 11, Rule 40 . . ." 11 In the case at bar, a determination of the issue of ownership is indispensable to resolving the rights of both parties over the property in controversy, and is inseparable from a determination of who between them has the right to possess the same. Indeed, the very complaint for unlawful detainer filed in the Metropolitan Trial Court of Quezon City is anchored on the alleged ownership of private respondent over the subject premises. 12 The parties did not object to the incongruity of a question of ownership being brought in an ejectment suit. Instead they both submitted evidence on such question, and the Metropolitan Trial Court decided on the issue. These facts are evident in the Metropolitan Trial Court's decision: From the records of the case, the evidence presented and the various arguments advanced by the parties, the Court finds that the property subject matter of this case is in the name of (herein private respondent) Better Homes and Realty Housing Corporation; that the Deed of Absolute Sale which was the basis for the issuance of said TCT No. 22184 is between N. Domingo Realty and Development Corporation and Better Homes Realty and Housing Corporation which was signed by Artemio S. Lao representing the seller N. Domingo and Realty Development Corporation; that a Board Resolution of N. Domingo and Realty and Development Corporation (Exhibit "D" position paper) shows that the Directors of the Board of the N. Domingo Realty and Development Corporation passed a resolution selling apartment units I and F located at No. 21 N. Domingo St., Quezon City and designating the (herein petitioner) with his brother Artemio S. Lao as signatories to the Deed of Sale. The claim therefore of the (herein petitioner) that he owns the property is not true . . . 13

(4) When the purchaser retains for himself a part of the purchase price; When the MTC decision was appealed to the Regional Trial Court, not one of the parties questioned the Metropolitan Trial Court's jurisdiction to decide the issue of ownership. In fact, the records show that both petitioner and private respondent discussed the issue in their respective pleadings before the Regional Trial Court. 14 They participated in all aspects of the trial without objection to its jurisdiction to decide the issue of ownership. Consequently, the Regional Trial Court aptly decided the issue based on the exercise of its original jurisdiction as authorized by Section 11, Rule 40 of the Rules of Court. This Court further notes that in both of the contending parties' pleadings filed on appeal before the Court of Appeals, the issue of ownership was likewise amply discussed. 15 The totality of evidence presented was sufficient to decide categorically the issue of ownership. These considerations, taken together with the fact that both the Metropolitan Trial Court and the Regional Trial Court decided the issue of ownership, justify the review of the lower courts' findings of fact and decision on the issue of ownership. This we now do, as we dispose of the second issue and decide the case with finality to spare the parties the time, trouble and expense of undergoing the rigors of another suit where they will have to present the same evidence all over again and where, in all probability, the same ultimate issue of ownership will be brought up on appeal. Second Issue: Absolute Sale or Equitable Mortgage? Private Respondent Better Homes Realty and Housing Corporation anchored its right in the ejectment suit on a contract of sale in which petitioner (through their family corporation) transferred the title of the property in question. Petitioner contends, however that their transaction was not an absolute sale, but an equitable mortgage. In determining the nature of a contract, the Court looks at the intent of the parties and not at the nomenclature used to describe it. Pivotal to deciding this issue is the true aim and purpose of the contracting parties as shown by the terminology used in the covenant, as well as "by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement." 16 In this regard, parol evidence becomes admissible to prove the true intent and agreement of the parties which the Court will enforce even if the title of the property in question has already been registered and a new transfer certificate of title issued in the name of the transferee. In Macapinlac vs. Gutierrez Repide, which involved an identical question, the Court succintly stated: . . . This conclusion is fully supported by the decision in Cuyugan vs. Santos (34 Phil., 100), where this court held that a conveyance in the form of a contract of sale with pacto de retro will be treated as a mere mortgage, if really executed as security for a debt, and that this fact can be shown by oral evidence apart from the instrument of conveyance, a doctrine which has been followed in the later cases of Villa vs. Santiago (38 Phil., 157), and Cuyugan vs. Santos (39 Phil., 970). xxx xxx xxx In the first place, it must be borne in mind that the equitable doctrine which has been so fully stated above, to the effect that any conveyance intended as security for a debt will be held in effect to be a mortgage, whether so actually expressed in the instrument or not, operates regardless of the form of the agreement chosen by the contracting parties as the repository of their will. Equity looks through the form and considers the substance; and no kind of engagement can be adopted which will enable the parties to escape from the equitable doctrine to which reference is made. In other words, a conveyance of land, accompanied by registration in the name of the transferee and the issuance of a new certificate, is no more secured from the operation of this equitable doctrine than the most informal conveyance that could be devised. 17 The law enumerates when a contract may be presumed to be an equitable mortgage: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right repurchase another instrument extending the period of redemption or granting a new period is executed; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. xxx xxx xxx 18 The foregoing presumption applies also to a "contract purporting to be an absolute sale." 19 Applying the preceding principles to the factual milieu of this case, we find the agreement between the private respondent and N. Domingo Realty & Housing Corporation, as represented by petitioner, manifestly one of equitable mortgage. First, possession of the property in the controversy remained with Petitioner Manuel Lao who was the beneficial owner of the property, before, during and after the alleged sale. 20 It is settled that a "pacto de retro sale should be treated as a mortgage where the (property) sold never left the possession of the vendors." 21 Second, the option given to Manuel Lao to purchase the property in controversy had been extended twice 22 through documents executed by Mr. Tan Bun Uy, President and Chairman of the Board of Better Homes Realty & Housing Corporation. The wording of the first extension is a refreshing revelation that indeed the parties really intended to be bound by a loan with mortgage, not by a pacto de retro. It reads, "On June 10, 88, this option is extended for another sixty days to expired (sic) on Aug. 11, 1988. The purchase price is increased to P137,000.00. Since Mr. Lao borrow (sic) P20,000.00 from me." 23 These extensions clearly represent the extension of time to pay the loan given to Manuel Lao upon his failure to pay said loan on its maturity. Mr. Lao was even granted an additional loan of P20,000.00 as evidenced by the above-quoted document. Third, unquestionably, Manuel Lao and his brother were in such "dire need of money" that they mortgaged their townhouse units registered under the name of N. Domingo Realty Corporation, the family corporation put up by their parents, to Private Respondent Better Homes Realty & Housing Corporation. In retrospect, it is easy to blame Petitioner Manuel Lao for not demanding a reformation of the contract to reflect the true intent of the parties. But this seeming inaction is sufficiently explained by the Lao brothers' desperate need for money, compelling them to sign the document purporting to be a sale after they were told that the same was just for "formality." 24 In fact, this Court, in various cases involving the same situation, had occasion to state: . . . In Jayme, et al. v. Salvador, et al., this Court upheld a judgment of the Court of First Instance of Iloilo which found the transaction between the parties to be a loan instead of a sale of real property notwithstanding the terminology used in the document, after taking into account the surrounding circumstances of the transaction. The Court through Justice Norberto Romualdez stated that while it was true that plaintiffs were aware of the contents of the contracts, the preponderance of the evidence showed however that they signed knowing that said contracts did not express their real intention, and if they did so notwithstanding this, it was due to the urgent necessity of obtaining fund. "Necessitous men are not, truly speaking, free men; but to answer a present emergency, will submit to any terms that the crafty may impose upon them." 25 Moreover, since the borrower's urgent need for money places the latter at a disadvantage vis-a-vis the lender who can thus dictate the terms of their contract, the Court, in case of an ambiguity, deems the contract to be one which involves the lesser transmission of rights and interest over the property in controversy. 26 As aptly found and concluded by the regional trial court: The evidence of record indicates that while as of April 4, 1988 (the date of execution of the Deed of Absolute Sale whereby the N. Domingo and Realty & Development Corporation purportedly sold the townhouse and lot subject of this suit to [herein private respondent Better Homes Realty & Housing Corporation] for P100,000.000) said N. Domingo Realty & Development Corporation (NDRDC, for short) was the registered owner of the subject property under Transfer Certificate of Title (TCT) No. 316634 of the Registry of Deeds for Quezon City, (herein petitioner Manuel Lao) in fact was and has been since 1975 the beneficial owner of the subject property and, thus, the same was assigned to him by the NDRDC, the family corporation set up by his parents and of which (herein petitioner) and his siblings are directors. That the parties' real transaction or contract over the subject property was not one of sale but, rather, one of loan secured, by a mortgage thereon is unavoidably inferrable from the following facts of record, to (herein petitioner's) possession of the subject property, which started in 1975 yet, continued and remained even after the alleged sale of April 4, 1988; (herein private respondent) executed an option to purchase in favor (herein petitioner) as early as April 2, 1988 or two days before (herein private respondent) supposedly acquired ownership of the property; the said option was renewed several times and the price was increased with each

renewal (thus, the original period for the exercise of the option was up to June 11, 1988 and the price was P109,000.00; then, on June 10, 1988, the option was extended for 60 days or until August 11, 1988 and the price was increased to P137,000.00; and then on August 11, 1988, the option was again extended until November 11,1988 and the price was increased to P158,840.00); and, the Deed of Absolute Sale of April 4, 1988 was registered and the property transferred in the name of (private respondent) only on May 10, 1989, per TCT No. 22184 of the Registry of Deeds for Quezon City (Arts. 1602, nos. 2, 3, & 6, & 1604, Civil Code). Indeed, if it were true, as it would have the Court believe, that (private respondent) was so appreciative of (petitioner's) alleged facilitation of the subject property's sale to it, it is quite strange why (private respondent) some two days before such supposed sale would have been minded and inclined to execute an option to purchase allowing (petitioner) to acquire the property the very same property it was still hoping to acquire at the time. Certainly, what is more likely and thus credible is that, if (private respondent) was indeed thankful that it was able to purchase the property, it would not given (petitioner) any option to purchase at all . . . 27 Based on the conduct of the petitioner and private respondent and even the terminology of the second option to purchase, we rule that the intent and agreement between them was undoubtedly one of equitable mortgage and not of sale. Third Issue: Should Petitioner Be Ejected? We answer in the negative. An action for unlawful detainer is grounded on Section 1, Rule 70 of the Rules of Court which provides that: . . . a landlord, vendor, vendee, or other person against whom the possession of any land or building is unlawfully withheld after the expiration or termination of the right to hold possession, by virtue of any contract, express or implied, or the legal representatives or assigns of any such landlord, vendor, vendee, or other person, may, at any time within one (1) year after such unlawful deprivation or withholding of possession, bring an action in the proper inferior court against the person or persons unlawfully withholding or depriving of possession, or any person or persons claiming under them, for the restitution of such possession, together with damages and costs . . . . Based on the previous discussion, there was no sale of the disputed property. Hence, it still belongs to petitioner's family corporation, N. Domingo Realty & Development Corporation. Private respondent, being a mere mortgagee, has no right to eject petitioner. Private respondent, as a creditor and mortgagee, " . . . cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void." 28 Other Matters Private respondent in his memorandum also contends that (1) petitioner is not the real party in interest and (2) the petition should be dismissed for "raising/stating facts not so found by the Court of Appeals." These deserve scant consideration. Petitioner was impleaded as party defendant in the ejectment suit by private respondent itself. Thus, private respondent cannot question his standing as a party. As such party, petitioner should be allowed to raise defenses which negate private respondent's right to the property in question. The second point is really academic. This ponencia relies on the factual narration of the Court of Appeals and not on the "facts" supplied by petitioner. WHEREFORE, the petition is hereby GRANTED. The challenged Decision of the Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Quezon City ordering the dismissal of the complaint for ejectment is REINSTATED and AFFIRMED. No pronouncement as to costs. SO ORDERED. Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur. Melo, J., is on leave. G.R. No. 117190 January 2, 1997 JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND GENERAL MERCHANDISING, petitioner, vs. COURT OF APPEALS and VICENTE HERCE JR., respondents. BELLOSILLO, J.:

This case involves the proper interpretation of the contract entered into between the parties. Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style J.M.T. Engineering and General Merchandising proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some negotiations they agreed on the construction of the windmill for a consideration of P60,000.00 with a one-year guaranty from the date of completion and acceptance by respondent Herce Jr. of the project. Pursuant to the agreement respondent paid petitioner a down payment of P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00. On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. In his Answer before the trial court respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place. 1 Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and its installation, exclusive of other incidental materials needed for the project. He also disowned any obligation to repair or reconstruct the system and insisted that he delivered it in good and working condition to respondent who accepted the same without protest. Besides, its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability. In finding for plaintiff, the trial court held that the construction of the deep well was not part of the windmill project as evidenced clearly by the letter proposals submitted by petitioner to respondent. 2 It noted that "[i]f the intention of the parties is to include the construction of the deep well in the project, the same should be stated in the proposals. In the absence of such an agreement, it could be safely concluded that the construction of the deep well is not a part of the project undertaken by the plaintiff." 3 With respect to the repair of the windmill, the trial court found that "there is no clear and convincing proof that the windmill system fell down due to the defect of the construction." 4 The Court of Appeals reversed the trial court. It ruled that the construction of the deep well was included in the agreement of the parties because the term "deep well" was mentioned in both proposals. It also gave credence to the testimony of respondent's witness Guillermo Pili, the proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him that the cost of constructing the deep well would be deducted from the contract price of P60,000.00. Upon these premises the appellate court concluded that respondent's payment of P15,000.00 to SPGMI should be applied to his remaining balance with petitioner thus effectively extinguishing his contractual obligation. However, it rejected petitioner's claim of force majeure and ordered the latter to reconstruct the windmill in accordance with the stipulated one-year guaranty. His motion for reconsideration having been denied by the Court of Appeals, petitioner now seeks relief from this Court. He raises two issues: firstly, whether the agreement to construct the windmill system included the installation of a deep well and, secondly, whether petitioner is under obligation to reconstruct the windmill after it collapsed. We reverse the appellate court on the first issue but sustain it on the second. The preponderance of evidence supports the finding of the trial court that the installation of a deep well was not included in the proposals of petitioner to construct a windmill system for respondent. There were in fact two (2) proposals: one dated 19 May 1987 which pegged the contract price at P87,000.00 (Exh. "1"). This was rejected by respondent. The other was submitted three days later, i.e., on 22 May 1987 which contained more specifications but proposed a lower contract price of P60,000.00 (Exh. "A"). The latter proposal was accepted by respondent and the construction immediately followed. The pertinent portions of the first letter-proposal (Exh. "1") are reproduced hereunder In connection with your Windmill System and Installation, we would like to quote to you as follows:

One (1) Set Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in diameter, with 20 pieces blade, Tower 40 feet high, including mechanism which is not advisable to operate during extra-intensity wind. Excluding cylinder pump. UNIT CONTRACT PRICE P87,000.00 The second letter-proposal (Exh. "A") provides as follows: In connection with your Windmill system, Supply of Labor Materials and Installation, operated water pump, we would like to quote to you as follows One (1) set Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet diameter, 1-lot blade materials, 40 feet Tower complete with standard appurtenances up to Cylinder pump, shafting U.S. adjustable International Metal. One (1) lot Angle bar, G.I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling. One (1) lot Float valve. One (1) lot Concreting materials foundation. F. O. B. Laguna Contract Price P60,000.00 Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely. Neither is there an itemization or description of the materials to be used in constructing the deep well. There is absolutely no mention in the two (2) documents that a deep well pump is a component of the proposed windmill system. The contract prices fixed in both proposals cover only the features specifically described therein and no other. While the words "deep well" and "deep well pump" are mentioned in both, these do not indicate that a deep well is part of the windmill system. They merely describe the type of deep well pump for which the proposed windmill would be suitable. As correctly pointed out by petitioner, the words "deep well" preceded by the prepositions "for" and "suitable for" were meant only to convey the idea that the proposed windmill would be appropriate for a deep well pump with a diameter of 2 to 3 inches. For if the real intent of petitioner was to include a deep well in the agreement to construct a windmill, he would have used instead the conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt as to their meaning they should not be disturbed. Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration 5 and, in case of doubt, their contemporaneous and subsequent acts shall be principally considered. 6 An examination of such contemporaneous and subsequent acts of respondent as well as the attendant circumstances does not persuade us to uphold him. Respondent insists that petitioner verbally agreed that the contract price of P60,000.00 covered the installation of a deep well pump. He contends that since petitioner did not have the capacity to install the pump the latter agreed to have a third party do the work the cost of which was to be deducted from the contract price. To prove his point, he presented Guillermo Pili of SPGMI who declared that petitioner Tanguilig approached him with a letter from respondent Herce Jr. asking him to build a deep well pump as "part of the price/contract which Engineer (Herce) had with Mr. Tanguilig." 7 We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr. wrote him a letter is unsubstantiated. The alleged letter was never presented in court by private respondent for reasons known only to him. But granting that this written communication existed, it could not have simply contained a request for Pili to install a deep well; it would have also mentioned the party who would pay for the undertaking. It strains credulity that respondent would keep silent on this matter and leave it all to petitioner Tanguilig to verbally convey to Pili that the deep well was part of the windmill construction and that its payment would come from the contract price of P60,000.00.

We find it also unusual that Pili would readily consent to build a deep well the payment for which would come supposedly from the windmill contract price on the mere representation of petitioner, whom he had never met before, without a written commitment at least from the former. For if indeed the deep well were part of the windmill project, the contract for its installation would have been strictly a matter between petitioner and Pili himself with the former assuming the obligation to pay the price. That it was respondent Herce Jr. himself who paid for the deep well by handing over to Pili the amount of P15,000.00 clearly indicates that the contract for the deep well was not part of the windmill project but a separate agreement between respondent and Pili. Besides, if the price of P60,000.00 included the deep well, the obligation of respondent was to pay the entire amount to petitioner without prejudice to any action that Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked why he tendered payment directly to Pili and not to petitioner, respondent explained, rather lamely, that he did it "because he has (sic) the money, so (he) just paid the money in his possession." 8 Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While the law is clear that "payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it," 9 it does not appear from the record that Pili and/or SPGMI was so authorized. Respondent cannot claim the benefit of the law concerning "payments made by a third person." 10 The Civil Code provisions do not apply in the instant case because no creditor-debtor relationship between petitioner and Guillermo Pili and/or SPGMI has been established regarding the construction of the deep well. Specifically, witness Pili did not testify that he entered into a contract with petitioner for the construction of respondent's deep well. If SPGMI was really commissioned by petitioner to construct the deep well, an agreement particularly to this effect should have been entered into. The contemporaneous and subsequent acts of the parties concerned effectively belie respondent's assertions. These circumstances only show that the construction of the well by SPGMI was for the sole account of respondent and that petitioner merely supervised the installation of the well because the windmill was to be connected to it. There is no legal nor factual basis by which this Court can impose upon petitioner an obligation he did not expressly assume nor ratify. The second issue is not a novel one. In a long line of cases 11 this Court has consistently held that in order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of the object of the contract. In Nakpil vs. Court of Appeals, 12 four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any participation in or aggravation of the injury to the creditor. Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Interestingly, the evidence does not disclose that there was actually a typhoon on the day the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong wind in this case cannot be fortuitous unforeseeable nor unavoidable. On the contrary, a strong wind should be present in places where windmills are constructed, otherwise the windmills will not turn. The appellate court correctly observed that "given the newly-constructed windmill system, the same would not have collapsed had there been no inherent defect in it which could only be attributable to the appellee." 13 It emphasized that respondent had in his favor the presumption that "things have happened according to the ordinary course of nature and the ordinary habits of life." 14 This presumption has not been rebutted by petitioner. Finally, petitioner's argument that private respondent was already in default in the payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. 15 When the windmill failed to function properly it became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost. WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest at the legal rate from the date of the filing of the complaint.

In return, petitioner is ordered to "reconstruct subject defective windmill system, in accordance with the one-year guaranty" 16 and to complete the same within three (3) months from the finality of this decision. SO ORDERED. Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur. [G.R. No. 126074. February 24, 1998] RIDJO TAPE & CHEMICAL CORP. and RIDJO PAPER CORPORATION, petitioners, vs. HON. COURT OF APPEALS, MANILA ELECTRIC CO., HON. PRESIDING JUDGE, Branch 104-REGIONAL TRIAL COURT OF QUEZON CITY, respondents. ROMERO, J.: Before us is a petition to review the decision[1] of the Court of Appeals which reversed that of the Regional Trial Court of Quezon City, Branch 104 in Civil Case Nos. Q-92-13845 and Q-92-13879 ordering petitioners to pay private respondent Manila Electric Co. (MERALCO) the amount of P415,317.66 and P89,710.58 plus the costs of suit. This petition involves the two cases filed by petitioners which were eventually consolidated. Civil Case No. Q-92-13845: On November 16, 1990, petitioners applied for and was granted electric service by MERALCO. Ten months later, however, or on September 4, 1991, petitioners received a letter from MERALCO demanding payment of P415,317.66, allegedly representing unregistered electric consumption for the period November 7, 1990, to February 13, 1991. MERALCO justified its demand on the ground that the unregistered electric consumption was due to the defects of the electric meter located in the premises of petitioners. Since petitioners refused to pay the amount, MERALCO notified them that in the event the overdue account remained unpaid, it would be forced to disconnect their electricity. Alarmed by this development, petitioners, instead of settling the amount, filed on October 29, 1992 a case before Branch 98 of the Quezon City RTC for the issuance of a writ of preliminary injunction and/or temporary restraining order to forestall any planned disconnection by MERALCO. On November 19, 1992, the trial court granted the prayer for preliminary injunction. Civil Case No. 13879: On July 30, 1992, petitioners received another demand letter from MERALCO, this time requiring them to pay the amount of P89,710.58 representing the unregistered electric consumption for the period July 15, 1991 to April 13, 1992, the deficiency again due to the defective meter installed in petitioners compound. MERALCOs demand having remained unheeded, petitioners were advised that their electric service would be disconnected without further notice. Hence, on November 5, 1992, petitioners filed a case before Branch 104 of the Quezon City RTC, seeking to enjoin MERALCO from implementing the suspension of electric service. Thereafter, on November 9, 1992, petitioners filed a motion for the consolidation of the two cases, which was granted, resulting in the joint trial of said cases before Branch 104 of the Quezon City RTC. On November 27, 1992, the trial court issued the corresponding preliminary injunction. After due trial, the lower court rendered a decision, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiff(s) and against the defendants: 1. Making the Injunction permanent, enjoining the defendants in both cases, and all their subordinates, legal representatives, electric meter readers and technicians from committing acts of dispossession/disruption of electric power on

the subject premises located at the compound of Ridjo Tape and Chemical Corporation and Ridjo Paper Corporation located at 64 and 68 Judge Juan Luna St., San Francisco del Monte, Quezon City. 2. Ordering defendants to pay the cost of suit.

Defendants counterclaim on (the) two cases are (sic) denied for lack of merit. MERALCO appealed to the Court of Appeals which, on January 22, 1996, reversed the trial courts finding, to wit: WHEREFORE, the appealed judgment is REVERSED; and appellees Ridjo Tape and Chemical Corporation and Ridjo Paper Corporation are hereby ordered to pay subject differential billings of P415,317.66 and P89,710.58, respectively. Costs against the appellees.[2] Aggrieved, petitioners filed a motion for reconsideration, which was denied by the Court of Appeals in a resolution dated August 14, 1996.[3] Hence, this petition. From the pleadings filed by the parties, it can be deduced that the only issue to be resolved is whether petitioners, despite the absence of evidence of tampering, are liable to pay for the unregistered electrical service. For a better understanding of the two cases, the terms and conditions of the Service Agreement regarding payments are reproduced: PAYMENTS Bills will be rendered by the Company to the Customer monthly in accordance with the applicable rate schedule. Said Bills are payable to collectors or at the main or branch offices of the Company or at its authorized banks within ten (10) days after the regular reading date of the electric meters. The word month as used herein and in the rate schedule is hereby defined to be the elapsed time between two succeeding meter readings approximately thirty (30) days apart. In the event of the stoppage or the failure by any meter to register the full amount of energy consumed, the Customer shall be billed for such period on an estimated consumption based upon his use of energy in a similar period of like use. (Underscoring supplied) In disclaiming any liability, petitioners assert that the phrase stoppage or failure by any meter to register the full amount of energy consumed can only refer to tampering on the part of the customer and not mechanical failure or defects.[4] MERALCO, on the other hand, argues that to follow the interpretation advanced by petitioners would constitute an unjust enrichment in favor of its customers.[5] Evidently, the Service Contract between petitioners and MERALCO partakes of the nature of a contract of adhesion as it was prepared solely by the latter, the only participation of the former being that they affixed or adhered their signature thereto,[6] thus, leaving no room for negotiation and depriving petitioners of the opportunity to bargain on equal footing.[7] Nevertheless, these types of contracts have been declared to be binding as ordinary contracts because the party adhering thereto is free to reject it in its entirety.[8] Being an ordinary contract, therefore, the principle that contracting parties can make stipulations in their contract provided they are not contrary to law, morals, good customs, public order or public policy, stands strong and true.[9] To be sure, contracts are respected as laws between the contracting parties, and they may establish such stipulations, clauses, terms and conditions as they may want to include.[10] Since both parties offered conflicting interpretations of the stipulation, however, then judicial determination of the parties intention is mandated.[11] In this regard, it must be stressed that in co nstruing a written contract, the reason behind and the circumstances surrounding its execution are of paramount importance to place the interpreter in the situation occupied by the parties concerned at the time the writing was executed.[12] With these pronouncement as parameters, and considering the circumstances of the parties, we are constrained to uphold MERALCOs interpretation.

At this juncture, we hasten to point out that the production and distribution of electricity is a highly technical business undertaking,[13] and in conducting its operation, it is only logical for public utilities, such as MERALCO, to employ mechanical devices and equipment for the orderly pursuit of its business. It is to be expected that the parties were consciously aware that these devices or equipment are susceptible to defects and mechanical failure. Hence, we are not prepared to believe that petitioners were ignorant of the fact that stoppages in electric meters can also result from inherent defects or flaws and not only from tampering or intentional mishandling. Clearly, therefore, the rationale of the provision in the Service Agreement was primarily to cover situations similar to the instant case, for there are instances when electric meters do fail to record the quantity of the current used for whatever reason.[14] It is precisely this kind of predicament that MERALCO seeks to protect itself from so as to avert business losses or reverses. It must be borne in mind that construction of the terms of a contract which would amount to impairment or loss of right is not favored; conservation and preservation, not waiver, abandonment or forfeiture of a right, is the rule.[15] Since MERALCO supplied electricity to petitioners for a fee, no intent to donate the same can be gleaned from the terms of the Agreement. Hence, the stipulation must be upheld. Corollarily, it must be underscored that MERALCO has the imperative duty to make a reasonable and proper inspection of its apparatus and equipment to ensure that they do not malfunction,[16] and the due diligence to discover and repair defects therein. Failure to perform such duties constitutes negligence.[17] A review of the records, however, discloses that the unpaid charges covered the periods from November 7, 1990 to February 13, 1991 for Civil Case No. Q-92-13045 and from July 15, 1991 to April 13, 1992 for Civil Case No. 13879, approximately three months and nine months, respectively. On such basis, we take judicial notice that during those periods, personnel representing MERALCO inspected and examined the electric meters of petitioners regularly for the purpose of determining the monthly dues payable. So, why were these defects not detected and reported on time? It has been held that notice of a defect need not be direct and express; it is enough that the same had existed for such a length of time that it is reasonable to presume that it had been detected,[18] and the presence of a conspicuous defect which has existed for a considerable length of time will create a presumption of constructive notice thereof.[19] Hence, MERALCOs failure to discover the defect, if any, considering the length of time, amounts to inexcusable negligence. Furthermore, we need not belabor the point that as a public utility, MERALCO has the obligation to discharge its functions with utmost care and diligence. Accordingly, we are left with no recourse but to conclude that this is a case of negligence on the part of MERALCO for which it must bear the consequences. Its failure to make the necessary repairs and replacement of the defective electric meter installed within the premises of petitioners was obviously the proximate cause of the instant dispute between the parties. Indeed, if an unusual electric consumption was not reflected in the statements of account of petitioners, MERALCO, considering its technical knowledge and vast experience in providing electric service, could have easily verified any possible error in the meter reading. In the absence of such a mistake, the electric meters themselves should be inspected for possible defects or breakdowns and forthwith repaired and, if necessary, replaced. Furthermore, if MERALCO discovered that contraptions or illegal devices were installed which would alter the result of the meter reading, then it should have filed the appropriate criminal complaint against petitioners under Presidential Decree No. 401.[20] The rationale behind this ruling is that public utilities should be put on notice, as a deterrent, that if they completely disregard their duty of keeping their electric meters in serviceable condition, they run the risk of forfeiting, by reason of their negligence, amounts originally due from their customers. Certainly, we cannot sanction a situation wherein the defects in the electric meter are allowed to continue indefinitely until suddenly the public utilities concerned demand payment for the unrecorded electricity utilized when, in the first place, they should have remedied the situation immediately. If we turn a blind eye on MERALCOs omission, it may encourage negligence on the part of public utilities, to the detriment of the consuming public. In view of the foregoing discussion, the liability of petitioners for consumed but unrecorded electricity must be limited by reason of MERALCOs negligence. Hence, an equitable solution would be for petitioners to pay only the estimated

consumption on a three-month average before the period in controversy. To hold otherwise would unjustly enrich petitioners who would be allowed to utilize additional electricity, albeit unrecorded, at no extra cost. To summarize, it is worth emphasizing that it is not our intention to impede or diminish the business viability of MERALCO, or any public utility company for that matter. On the contrary, we would like to stress that, being a public utility vested with vital public interest, MERALCO is impressed with certain obligations towards its customers and any omission on its part to perform such duties would be prejudicial to its interest. For in the final analysis, the bottom line is that those who do not exercise such prudence in the discharge of their duties shall be made to bear the consequences of such oversight. WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No. 44010 is hereby MODIFIED. Petitioners are ordered to pay MERALCO the amount P168,342.75, representing its average electric consumption three months prior to the period in controversy.[21] No costs. SO ORDERED. Narvasa, C.J., (Chairman), and Kapunan, JJ., concur. Purisima, J., took no part being the ponente below. [G.R. No. 163419, February 13, 2008] TSPIC CORPORATION, Petitioner, vs. TSPIC EMPLOYEES UNION (FFW), representing MARIA FE FLORES, FE CAPISTRANO, AMY DURIAS,[1] CLAIRE EVELYN VELEZ, JANICE OLAGUIR, JERICO ALIPIT, GLEN BATULA, SER JOHN HERNANDEZ, RACHEL NOVILLAS, NIMFA ANILAO, ROSE SUBARDIAGA, VALERIE CARBON, OLIVIA EDROSO, MARICRIS DONAIRE, ANALYN AZARCON, ROSALIE RAMIREZ, JULIETA ROSETE, JANICE NEBRE, NIA ANDRADE, CATHERINE YABA, DIOMEDISA ERNI,[2] MARIO SALMORIN, LOIDA COMULLO,[3] MARIE ANN DELOS SANTOS,[4] JUANITA YANA, and SUZETTE DULAY, Respondents. VELASCO JR., J.: The path towards industrial peace is a two-way street. Fundamental fairness and protection to labor should always govern dealings between labor and management. Seemingly conflicting provisions should be harmonized to arrive at an interpretation that is within the parameters of the law, compassionate to labor, yet, fair to management. In this Petition for Review on Certiorari under Rule 45, petitioner TSPIC Corporation (TSPIC) seeks to annul and set aside the October 22, 2003 Decision[5] and April 23, 2004 Resolution[6] of the Court of Appeals (CA) in CA-G.R. SP No. 68616, which affirmed the September 13, 2001 Decision[7] of Accredited Voluntary Arbitrator Josephus B. Jimenez in National Conciliation and Mediation Board Case No. JBJ-AVA-2001-07-57. TSPIC is engaged in the business of designing, manufacturing, and marketing integrated circuits to serve the communication, automotive, data processing, and aerospace industries. Respondent TSPIC Employees Union (FFW) (Union), on the other hand, is the registered bargaining agent of the rank-and-file employees of TSPIC. The respondents, Maria Fe Flores, Fe Capistrano, Amy Durias, Claire Evelyn Velez, Janice Olaguir, Jerico Alipit, Glen Batula, Ser John Hernandez, Rachel Novillas, Nimfa Anilao, Rose Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine Yaba, Diomedisa Erni, Mario Salmorin, Loida Comullo, Marie Ann Delos Santos, Juanita Yana, and Suzette Dulay, are all members of the Union. In 1999, TSPIC and the Union entered into a Collective Bargaining Agreement (CBA)[8] for the years 2000 to 2004. The CBA included a provision on yearly salary increases starting January 2000 until January 2002. Section 1, Article X of the CBA provides, as follows: Section 1. Salary/ Wage Increases.Employees covered by this Agreement shall be granted salary/wage increases as follows: a) Effective January 1, 2000, all employees on regular status and within the bargaining unit on or before said date shall be granted a salary increase equivalent to ten percent (10%) of their basic monthly salary as of December 31, 1999. b) Effective January 1, 2001, all employees on regular status and within the bargaining unit on or before said date shall be granted a salary increase equivalent to twelve (12%) of their basic monthly salary as of December 31, 2000. c) Effective January 1, 2002, all employees on regular status and within the bargaining unit on or before said date shall be granted a salary increase equivalent to eleven percent (11%) of their basic monthly salary as of December 31, 2001.

The wage salary increase of the first year of this Agreement shall be over and above the wage/salary increase, including the wage distortion adjustment, granted by the COMPANY on November 1, 1999 as per Wage Order No. NCR-07. The wage/salary increases for the years 2001 and 2002 shall be deemed inclusive of the mandated minimum wage increases under future Wage Orders, that may be issued after Wage Order No. NCR-07, and shall be considered as correction of any wage distortion that may have been brought about by the said future Wage Orders. Thus the wage/salary increases in 2001 and 2002 shall be deemed as compliance to future wage orders after Wage Order No. NCR-07. Consequently, on January 1, 2000, all the regular rank-and-file employees of TSPIC received a 10% increase in their salary. Accordingly, the following nine (9) respondents (first group) who were already regular employees received the said increase in their salary: Maria Fe Flores, Fe Capistrano, Amy Durias, Claire Evelyn Velez, Janice Olaguir, Jerico Alipit, Glen Batula, Ser John Hernandez, and Rachel Novillas.[9] The CBA also provided that employees who acquire regular employment status within the year but after the effectivity of a particular salary increase shall receive a proportionate part of the increase upon attainment of their regular status. Sec. 2 of the CBA provides: SECTION 2. Regularization Increase.A covered daily paid employee who acquires regular status within the year subsequent to the effectivity of a particular salary/wage increase mentioned in Section 1 above shall be granted a salary/wage increase in proportionate basis as follows:Regularization Period Equivalent Increase - 1st Quarter 100% - 2nd Quarter 75% - 3rd Quarter 50% - 4th Quarter 25% Thus, a daily paid employee who becomes a regular employee covered by this Agreement only on May 1, 2000, i.e., during the second quarter and subsequent to the January 1, 2000 wage increase under this Agreement, will be entitled to a wage increase equivalent to seventy-five percent (75%) of ten percent (10%) of his basic pay. In the same manner, an employee who acquires regular status on December 1, 2000 will be entitled to a salary increase equivalent to twenty-five percent (25%) of ten percent (10%) of his last basic pay. On the other hand, any monthly-paid employee who acquires regular status within the term of the Agreement shall be granted regularization increase equivalent to 10% of his regular basic salary. Then on October 6, 2000, the Regional Tripartite Wage and Productivity Board, National Capital Region, issued Wage Order No. NCR-08[10] (WO No. 8) which raised the daily minimum wage from PhP 223.50 to PhP 250 effective November 1, 2000. Conformably, the wages of 17 probationary employees, namely: Nimfa Anilao, Rose Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine Yaba, Diomedisa Erni, Mario Salmorin, Loida Comullo, Marie Ann Delos Santos, Juanita Yana, and Suzette Dulay (second group), were increased to PhP 250.00 effective November 1, 2000. On various dates during the last quarter of 2000, the above named 17 employees attained regular employment[11] and received 25% of 10% of their salaries as granted under the provision on regularization increase under Article X, Sec. 2 of the CBA. In January 2001, TSPIC implemented the new wage rates as mandated by the CBA. As a result, the nine employees (first group), who were senior to the above-listed recently regularized employees, received less wages. On January 19, 2001, a few weeks after the salary increase for the year 2001 became effective, TSPICs Human Resources Department notified 24 employees,[12] namely: Maria Fe Flores, Janice Olaguir, Rachel Novillas, Fe Capistrano, Jerico Alipit, Amy Durias, Glen Batula, Claire Evelyn Velez, Ser John Hernandez, Nimfa Anilao, Rose Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine Yaba, Diomedisa Erni, Mario Salmorin, Loida Comullo, and Marie Ann Delos Santos, that due to an error in the automated payroll system, they were overpaid and the overpayment would be deducted from their salaries in a staggered basis, starting February 2001. TSPIC explained that the correction of the erroneous computation was based on the crediting provision of Sec. 1, Art. X of the CBA.

The Union, on the other hand, asserted that there was no error and the deduction of the alleged overpayment from employees constituted diminution of pay. The issue was brought to the grievance machinery, but TSPIC and the Union failed to reach an agreement. Consequently, TSPIC and the Union agreed to undergo voluntary arbitration on the solitary issue of whether or not the acts of the management in making deductions from the salaries of the affected employees constituted diminution of pay. On September 13, 2001, Arbitrator Jimenez rendered a Decision, holding that the unilateral deduction made by TSPIC violated Art. 100[13] of the Labor Code. The fallo reads: WHEREFORE, in the light of the law on the matter and on the facts adduced in evidence, judgment is hereby rendered in favor of the Union and the named individual employees and against the company, thereby ordering the [TSPIC] to pay as follows: 1) to the sixteen (16) newly regularized employees named above, the amount of P12,642.24 a month or a total of P113,780.16 for nine (9) months or P7,111.26 for each of them as well as an additional P12,642.24 (for all), or P790.14 (for each), for every month after 30 September 2001, until full payment, with legal interests for every month of delay; 2) to the nine (9) who were hired earlier than the sixteen (16); also named above, their respective amount of entitlements, according to the Unions correct computation, ranging from P110.22 per month (or P991.98 for nine months) to P450.58 a month (or P4,055.22 for nine months), as well as corresponding monthly entitlements after 30 September 2001, plus legal interests until full payment, 3) to Suzette Dulay, the amount of P608.14 a month (or P5,473.26), as well as corresponding monthly entitlements after 30 September 2001, plus legal interest until full payment, 4) Attorneys fees equal to 10% of all the above monetary awards.

The claim for exemplary damages is denied for want of factual basis. The parties are hereby directed to comply with their joint voluntary commitment to abide by this Award and thus, submit to this Office jointly, a written proof of voluntary compliance with this DECISION within ten (10) days after the finality hereof. SO ORDERED.[14] TSPIC filed a Motion for Reconsideration which was denied in a Resolution dated November 21, 2001. Aggrieved, TSPIC filed before the CA a petition for review under Rule 43 docketed as CA-G.R. SP No. 68616. The appellate court, through its October 22, 2003 Decision, dismissed the petition and affirmed in toto the decision of the voluntary arbitrator. The CA declared TSPICs computation allowing PhP 287 as daily wages to the newly regularized employees to be correct, noting that the computation conformed to WO No. 8 and the provisions of the CBA. According to the CA, TSPIC failed to convince the appellate court that the deduction was a result of a system error in the automated payroll system. The CA explained that when WO No. 8 took effect on November 1, 2000, the concerned employees were still probationary employees who were receiving the minimum wage of PhP 223.50. The CA said that effective November 1, 2000, said employees should have received the minimum wage of PhP 250. The CA held that when respondents became regular employees on November 29, 2000, they should be allowed the salary increase granted them under the CBA at the rate of 25% of 10% of their basic salary for the year 2000; thereafter, the 12% increase for the year 2001 and the 10% increase for the year 2002 should also be made applicable to them.[15] TSPIC filed a Motion for Reconsideration which was denied by the CA in its April 23, 2004 Resolution. TSPIC filed the instant petition which raises this sole issue for our resolution: Does the TSPICs decision to deduct the alleged overpayment from the salaries of the affected members of the Union constitute diminution of benefits in violation of the Labor Code?

TSPIC maintains that the formula proposed by the Union, adopted by the arbitrator and affirmed by the CA, was flawed, inasmuch as it completely disregarded the crediting provision contained in the last paragraph of Sec. 1, Art. X of the CBA. We find TSPICs contention meritorious. A Collective Bargaining Agreement is the law between the parties It is familiar and fundamental doctrine in labor law that the CBA is the law between the parties and they are obliged to comply with its provisions.[16] We said so in Honda Phils., Inc. v. Samahan ng Malayang Manggagawa sa Honda: A collective bargaining agreement or CBA refers to the negotiated contract between a legitimate labor organization and the employer concerning wages, hours of work and all other terms and conditions of employment in a bargaining unit. As in all contracts, the parties in a CBA may establish such stipulations, clauses, terms and conditions as they may deem convenient provided these are not contrary to law, morals, good customs, public order or public policy. Thus, where the CBA is clear and unambiguous, it becomes the law between the parties and compliance therewith is mandated by the express policy of the law. [17] Moreover, if the terms of a contract, as in a CBA, are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of their stipulations shall control.[18] However, sometimes, as in this case, though the provisions of the CBA seem clear and unambiguous, the parties sometimes arrive at conflicting interpretations. Here, TSPIC wants to credit the increase granted by WO No. 8 to the increase granted under the CBA. According to TSPIC, it is specifically provided in the CBA that the salary/wage increase for the year 2001 shall be deemed inclusive of the mandated minimum wage increases under future wage orders that may be issued after Wage Order No. 7. The Union, on the other hand, insists that the crediting provision of the CBA finds no application in the present case, since at the time WO No. 8 was issued, the probationary employees (second group) were not yet covered by the CBA, particularly by its crediting provision. As a general rule, in the interpretation of a contract, the intention of the parties is to be pursued.[19] Littera necat spiritus vivificat. An instrument must be interpreted according to the intention of the parties. It is the duty of the courts to place a practical and realistic construction upon it, giving due consideration to the context in which it is negotiated and the purpose which it is intended to serve.[20] Absurd and illogical interpretations should also be avoided. Considering that the parties have unequivocally agreed to substitute the benefits granted under the CBA with those granted under wage orders, the agreement must prevail and be given full effect. Paragraph (b) of Sec. 1 of Art. X of the CBA provides for the general agreement that, effective January 1, 2001, all employees on regular status and within the bargaining unit on or before said date shall be granted a salary increase equivalent to twelve (12%) of their basic monthly salary as of December 31, 2000. The 12% salary increase is granted to all employees who (1) are regular employees and (2) are within the bargaining unit. Second paragraph of (c) provides that the salary increase for the year 2000 shall not include the increase in salary granted under WO No. 7 and the correction of the wage distortion for November 1999. The last paragraph, on the other hand, states the specific condition that the wage/salary increases for the years 2001 and 2002 shall be deemed inclusive of the mandated minimum wage increases under future wage orders, that may be issued after WO No. 7, and shall be considered as correction of the wage distortions that may be brought about by the said future wage orders. Thus, the wage/salary increases in 2001 and 2002 shall be deemed as compliance to future wage orders after WO No. 7. Paragraph (b) is a general provision which allows a salary increase to all those who are qualified. It, however, clashes with the last paragraph which specifically states that the salary increases for the years 2001 and 2002 shall be deemed inclusive of wage increases subsequent to those granted under WO No. 7. It is a familiar rule in interpretation of contracts that conflicting provisions should be harmonized to give effect to all.[21] Likewise, when general and specific provisions are inconsistent, the specific provision shall be paramount to and govern the general provision.[22] Thus, it may be reasonably concluded that TSPIC granted the salary increases under the condition that any wage order that may be subsequently issued shall be credited against the previously granted increase. The intention of the parties is clear: As long as an employee is qualified to receive the 12% increase in salary, the employee shall be granted the increase; and as long as an employee is granted the 12% increase, the amount shall be credited against any wage order issued after WO No. 7.

Respondents should not be allowed to receive benefits from the CBA while avoiding the counterpart crediting provision. They have received their regularization increases under Art. X, Sec. 2 of the CBA and the yearly increase for the year 2001. They should not then be allowed to avoid the crediting provision which is an accompanying condition. Respondents attained regular employment status before January 1, 2001. WO No. 8, increasing the minimum wage, was issued after WO No. 7. Thus, respondents rightfully received the 12% salary increase for the year 2001 granted in the CBA; and consequently, TSPIC rightfully credited that 12% increase against the increase granted by WO No. 8. Proper formula for computing the salaries for the year 2001 Thus, the proper computation of the salaries of individual respondents is as follows: (1) With regard to the first group of respondents who attained regular employment status before the effectivity of WO No. 8, the computation is as follows: For respondents Jerico Alipit and Glen Batula:[23] Wage rate before WO No. 8 .............................. PhP 234.67 Increase due to WO No. 8 setting the minimum wage at PhP 250 .................. Total Salary upon effectivity of WO No. 8 ........... PhP 250.00

15.33

Increase for 2001 (12% of 2000 salary) .............. PhP 30.00 Less the wage increase under WO No. 8 ............ ____15.33 Total difference between the wage increase for 2001 and the increase granted under WO No. 8 ............. PhP 14.67

Wage rate by December 2000 ............................ PhP 250.00 Plus total difference between the wage increase for 2001 and the increase granted under WO No. 8 ........... 14.67 Total (Wage rate range beginning January 1, 2001) PhP 264.67

For respondents Ser John Hernandez and Rachel Novillas:[24] Wage rate range before WO No. 8 ..................... PhP 234.68 Increase due to WO No. 8 setting the minimum wage at PhP 250 .................. Total Salary upon effectivity of WO No. 8 ........... PhP 250.00

15.32

Increase for 2001 (12% of 2000 salary) .............. PhP 30.00 Less the wage increase under WO No. 8 ............ 15.32 Total difference between the wage increase for 2001 and the increase granted under WO No. 8 ........................

PhP 14.68

Wage rate by December 2000 ............................ PhP 250.00 Plus total difference between the wage increase for 2001 and the increase granted under WO No. 8 ........... _____14.68 Total (Wage rate range beginning January 1, 2001) ...................... PhP 264.68

For respondents Amy Durias, Claire Evelyn Velez, and Janice Olaguir:[25] Wage rate range before WO No. 8 .................................... PhP 240.26 Increase due to WO No. 8 setting the minimum wage at PhP 250 ................... 9.74 Total Salary upon effectivity of WO No. 8 ...................... PhP 250.00

Minimum Wage per Wage Order .................................. PhP 250.00 Wage rate before Wage Order ...................................... 223.50 Wage Increase ...................................... PhP 26.50 Upon attainment of regular employment status, the employees salaries were increased by 25% of 10% of their basic salaries, as provided for in Sec. 2, Art. X of the CBA, thus resulting in a further increase of PhP 6.25, for a total of PhP 256.25, computed as follows: Wage rate after WO No. 8 .................................................. PhP 250.00 Regularization increase (25 % of 10% of basic salary) .......... 6.25 Total (Salary for the end of year 2000) ................................ PhP 256.25 To compute for the increase in wage rates for the year 2001, get the increase of 12% of the employees salaries as of December 31, 2000; then subtract from that amount, the amount increased in salaries as granted under WO No. 8 in accordance with the crediting provision of the CBA, to arrive at the increase in salaries for the year 2001 of the recently regularized employees. Add the result to their salaries as of December 31, 2000 to get the proper salary beginning January 1, 2001, thus: Increase for 2001 (12% of 2000 salary) ....................................... PhP 30.75 Less the wage increase under WO No. 8 ..................................... 26.50 Difference between the wage increase for 2001 and the increase granted under WO No. 8 ..................... PhP 4.25 Wage rate after regularization increase .......................................... PhP 256.25 Plus total difference between the wage increase and the increase granted under WO No. 8 .......................................... Total (Wage rate beginning January 1, 2001) ...............................

Increase for 2001 (12% of 2000 salary) ............................. PhP 30.00 Less the wage increase under WO No. 8 ................... Total difference between the wage increase for 2001 and the increase granted under WO No. 8 .........................

_____9.74 PhP 20.26

Wage rate by December 2000 ........................................... PhP 250.00 Plus total difference between the wage increase for 2001 and the increase granted under WO No. 8 ............... Total (Wage rate range beginning January 1, 2001) .......

_____20.26 PhP 270.26

For respondents Ma. Fe Flores and Fe Capistrano:[26] Wage rate range before WO No. 8 .............................. Increase due to WO No. 8 setting the minimum wage at PhP 250 ............................... Total Salary upon effectivity of WO No. 8 .........................

PhP 245.85 4.15 PhP 250.00

4.25 PhP 260.50

Increase for 2001 (12% of 2000 salary) ................................ PhP 30.00 Less the wage increase under WO No. 8 ............ 4.15 Total difference between the wage increase for 2001 and the increase granted under WO No. 8 ................................

With these computations, the crediting provision of the CBA is put in effect, and the wage distortion between the first and second group of employees is cured. The first group of employees who attained regular employment status before the implementation of WO No. 8 is entitled to receive, starting January 1, 2001, a daily wage rate within the range of PhP 264.67 to PhP 275.85, depending on their wage rate before the implementation of WO No. 8. The second group that attained regular employment status after the implementation of WO No. 8 is entitled to receive a daily wage rate of PhP 260.50 starting January 1, 2001. PhP 25.85 Diminution of benefits TSPIC also maintains that charging the overpayments made to the 16 respondents through staggered deductions from their salaries does not constitute diminution of benefits. We agree with TSPIC.

Wage rate by December 2000 ....................................... PhP 250.00 Plus total difference between the wage increase for 2001 and the increase granted under WO No. 8 ...........

_____25.85 PhP 275.85 Diminution of benefits is the unilateral withdrawal by the employer of benefits already enjoyed by the employees. There is diminution of benefits when it is shown that: (1) the grant or benefit is founded on a policy or has ripened into a practice over a long period; (2) the practice is consistent and deliberate; (3) the practice is not due to error in the construction or application of a doubtful or difficult question of law; and (4) the diminution or discontinuance is done unilaterally by the employer.[27] As correctly pointed out by TSPIC, the overpayment of its employees was a result of an error. This error was immediately rectified by TSPIC upon its discovery. We have ruled before that an erroneously granted benefit may be withdrawn without violating the prohibition against non-diminution of benefits. We ruled in Globe-Mackay Cable and Radio Corp. v. NLRC: Absent clear administrative guidelines, Petitioner Corporation cannot be faulted for erroneous application of the law. Payment may be said to have been made by reason of a mistake in the construction or application of a doubtful or difficult question of law. (Article 2155, in relation to Article 2154 of the Civil Code). Since it is a past error that is being cor rected, no vested right may be said to have arisen nor any diminution of benefit under Article 100 of the Labor Code may be said to have resulted by virtue of the correction.[28]

Total (Wage rate range beginning January 1, 2001) ...................

(2) With regard to the second group of employees, who attained regular employment status after the implementation of WO No. 8, namely: Nimfa Anilao, Rose Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine Yaba, Diomedisa Erni, Mario Salmorin, Loida Comullo, Marie Ann Delos Santos, Juanita Yana, and Suzette Dulay, the proper computation of the salaries for the year 2001, in accordance with the CBA, is as follows:

Compute the increase in salary after the implementation of WO No. 8 by subtracting the minimum wage before WO No. 8 from the minimum wage per the wage order to arrive at the wage increase, thus:

Here, no vested right accrued to individual respondents when TSPIC corrected its error by crediting the salary increase for the year 2001 against the salary increase granted under WO No. 8, all in accordance with the CBA. Hence, any amount given to the employees in excess of what they were entitled to, as computed above, may be legally deducted by TSPIC from the employees salaries. It was also compassionate and fair that TSPIC deducted the overpayment in installments over a period of 12 months starting from the date of the initial deduction to lessen the burden on the overpaid employees. TSPIC, in turn, must refund to individual respondents any amount deducted from their salaries which was in excess of what TSPIC is legally allowed to deduct from the salaries based on the computations discussed in this Decision. As a last word, it should be reiterated that though it is the states responsibility to afford protection to labor, this policy should not be used as an instrument to oppress management and capital.[29] In resolving disputes between labor and capital, fairness and justice should always prevail. We ruled in Norkis Union v. Norkis Trading that in the resolution of labor cases, we have always been guided by the State policy enshrined in the Constitution: social justice and protection of the working class. Social justice does not, however, mandate that every dispute should be automatically decided in favor of labor. In any case, justice is to be granted to the deserving and dispensed in the light of the established facts and the applicable law and doctrine.[30] WHEREFORE, premises considered, the September 13, 2001 Decision of the Labor Arbitrator in National Conciliation and Mediation Board Case No. JBJ-AVA-2001-07-57 and the October 22, 2003 CA Decision in CA-G.R. SP No. 68616 are hereby AFFIRMED with MODIFICATION. TSPIC is hereby ORDERED to pay respondents their salary increases in accordance with this Decision, as follows:Name of Employee Daily Wage Rate No. of Working Days in a Month No. of Months in a Year Total Salary for 2001 Nimfa Anilao 260.5 26 12 81,276.00 Rose Subardiaga 260.5 26 12 81,276.00 Valerie Carbon 260.5 26 12 81,276.00 Olivia Edroso 260.5 26 12 81,276.00 Maricris Donaire 260.5 26 12 81,276.00 Analyn Azarcon 260.5 26 12 81,276.00 Rosalie Ramirez 260.5 26 12 81,276.00 Julieta Rosete 260.5 26 12 81,276.00 Janice Nebre 260.5 26 12 81,276.00 Nia Andrade 260.5 26 12 81,276.00 Catherine Yaba 260.5 26 12 81,276.00 Diomedisa Erni 260.5 26 12 81,276.00 Mario Salmorin 260.5 26 12 81,276.00 Loida Camullo 260.5 26 12 81,276.00 Marie Ann Delos Santos 260.5 26 12 81,276.00 Juanita Yana 260.5 26 12 81,276.00 Suzette Dulay 260.5 26 12 81,276.00 Jerico Alipit 264.67 26 12 82,577.04 Glen Batula 264.67 26 12 82,577.04 Ser John Hernandez 264.68 26 12 82,580.16 Rachel Novillas 264.68 26 12 82,580.16 Amy Durias 270.26 26 12 84,321.12 Claire Evelyn Velez 270.26 26 12 84,321.12 Janice Olaguir 270.26 26 12 84,321.12 Maria Fe Flores 275.85 26 12 86,065.20 Fe Capistrano 275.85 26 12 86,065.20

BENGUET CORPORATION, DENNIS R. BELMONTE, EFREN C. REYES and GREGORIO A. FIDER, Petitioners vs. CESAR CABILDO, Respondent. NACHURA, J.: This is a petition for review on certiorari assailing the Court of Appeals (CA) decision[1] in CA-G.R. CV No. 37123 which affirmed with modification the decision[2] of the Regional Trial Court (RTC), Branch 6, Baguio City in Civil Case No. 593-R. Petitioner Benguet Corporation is a mining company with three (3) mining sites: Balatoc, Antamok and Acupan. Petitioners Dennis R. Belmonte,[3] Efren C. Reyes,[4] and Gregorio A. Fider[5] are all officers and employees of Benguet Corporation.[6] On the other hand, respondent Cesar Cabildo and Rolando Velasco, defendant before the lower courts, were former employees of Benguet Corporation. At the time of his retirement on August 31, 1981, Cabildo was Department Manager of Benguet Corporations Transportation and Heavy Equipment Department and had worked there for twenty-five (25) years. Thereafter, Cabildo became a service contractor of painting jobs. Sometime in February 1983, Cabildo submitted his quotation and bid for the painting of Benguet Corporations Mill Buildings and Bunkhouses located at Balatoc mining site. He then negotiated with petitioners Reyes and Fider, the recommending approval and approving authority, respectively, of Benguet Corporation, on the scope of work for the Balatoc site painting job which included necessary repairs. Reyes and Cabildo discussed the price schedule, and the parties eventually agreed that Benguet Corporation would provide the needed materials for the project. Upon approval of his quotation and bid, Cabildo forthwith wrote Reyes on March 5, 1983 requesting the needed materials, so that he could immediately commence work. On March 7, 1983, even without a written contract, Cabildo began painting the Mill Buildings at Balatoc. On March 9, 1983, Cabildo again wrote Reyes requesting the assignment of a representative by Benguet Corporation to closely monitor the daily work accomplishments of Cabildo and his workers. According to Cabildo, the request was made in order to: (1) preclude doubts on claims of payment; (2) ensure that accomplishment of the job is compliant with Benguet Corporations standards; and (3) guarantee availability of the required materials to prevent slowdown and/or stoppage of work. On even date, Cabildo submitted his first work accomplishment covering carpentry work and installation of the scaffolding for which he received a partial payment of P10,776.94. Subsequently, on March 23, 1983, Cabildo and Benguet Corporation, represented by petitioner Belmonte, formally signed the Contract of Work for the painting of the Mill Buildings and Bunkhouses at the Balatoc mining site including the necessary repair works thereon. The Contract of Work, in pertinent part, reads: (1) [Cabildo] shall paint the Mill Buildings at Balatoc Mill and all the bunkhouses at Balatoc, Itogon, Benguet, including certain repair works which may be necessary. (2) For and in consideration of the work to be done by [Cabildo], [Benguet Corporation] shall pay [Cabildo] at the rate herein provided, as follows: x x x x x (3) [Cabildo] shall employ his own workers and employees, and shall have the sole and exclusive obligation to pay their basic wage, overtime pay, ECOLA, medical treatment, SSS premiums, and other benefits due them under existing Philippine laws or other Philippine laws which might be enacted or promulgated during the life of this Contract. If, for any reason, BENGUET CORPORATION is made to assume any liability of [Cabildo] on any of his workers and employees, [Cabildo] shall reimburse [Benguet Corporation] for any such payment. (4) [Cabildo] shall require all persons before hiring them in the work subject of this Contract to obtain their clearance from the Security Department of Baguio District Gold Operations of BENGUET CORPORATION.

The award for attorneys fees of ten percent (10%) of the total award is MAINTAINED. SO ORDERED . G.R. No. 151402 August 22, 2008

(5) BENGUET CORPORATION shall retain 10% of every performance payment to [Cabildo] under the terms and conditions of this Contract. Such retention shall be cumulative and shall be paid to [Cabildo] only after thirty (30) days from the time BENGUET CORPORATION finally accepts the works as fully and completely finished in accord with the requirements of [Benguet Corporation]. Before the 10% retention of performance payments will, however, be fully paid to [Cabildo], all his workers and employees shall certify under oath that they have been fully paid their wages, SSS, medicare, and ECC premiums, ECOLA, overtime pay, and other benefits due them under laws in force and effect and that they have no outstanding claim against [Cabildo]. BENGUET CORPORATION has the right to withhold from the 10% retention any amount equal to the unsatisfied claim of any worker against [Cabildo] until the claim of the worker is finally settled. (6) [Cabildo] shall not be allowed to assign or subcontract the works, or any phase thereof, and any violation of this provision will entitle BENGUET CORPORATION the sole and exclusive right to declare this Contract as cancelled and without any further force and effect. (7) [Cabildo] and his heirs shall be solely and directly liable to the exclusion of BENGUET CORPORATION, its stockholders, officers, employees, and agents and representatives for civil damages for any injury or death of any of his employees, workers, officers, agents and representatives or to any third person and for any damage to any property due to faulty or poor workmanship or negligence or willful act of [Cabildo], his workers, employees, or representatives in the course of, during or when in any way connected with, the works and construction. If for any reason BENGUET CORPORATION is made to assume any liability of [Cabildo], his workers, employees, or representatives in the course of, during or when in any way connected with, the works and construction. If for any reason BENGUET CORPORATION is made to assume any liability of [Cabildo], his workers, employees, or agents or representatives under this provision, [Cabildo] and his heirs shall reimburse the CORPORATION for any payment. (8) [Cabildo] hereby undertakes to complete the work subject of this Contract within (no period fixed) excluding Sundays and Holidays, otherwise, [Benguet Corporation] shall have the sole and exclusive right to cancel this Contract. IN WITNESS WHEREOF, the parties have hereunto affixed their signatures on this 23rd day of March, 1983 at Itogon, Benguet Province. BENGUET CORPORATION By: (sgd.) DENNIS R. BELMONTE Vice-President Benguet Gold Operations (sgd.) CESAR Q. CABILDO Contractor SIGNED IN OUR PRESENCE: _____sgd.______ Witnesses _____sgd.______[7] Apart from the price schedule stipulated in the Contract of Work, which only reproduced the quotation and bid submitted by Cabildo, and the preliminary discussions undertaken by the parties, all the stipulations were incorporated therein by Benguet Corporation which solely drafted the contract. To undertake the project, Cabildo recruited and hired laborers thirty-three (33) painters and carpenters including petitioner Velasco as his general foreman. The succeeding events, narrated by the trial court as echoed by the appellate court in their respective decisions, led to the parties falling out:

[I]t must be pointed out that the Mill Buildings in Balatoc were about 28 buildings in all interconnected with each other grouped into 9 areas with some buildings very dangerous since it housed the machineries, agitators and tanks with cyanide solutions to mill the ores while the bunkhouses, which housed the laborers, were about 38 buildings in all averaging about 30 to 35 meters in height or more than 100 feet and thus would take sometime to paint and repair probably for about one and a half (1) years. Thus, the need for scaffoldings to paint the Mill buildings and bunkhouses so that the workers would be safe, can reach the height of the buildings and avoid the fumes of cyanide and other chemicals used in the Milling of the ores. Payment was to be made on the basis of work accomplished at a certain rate per square meter in accordance with the prices indicated in the Contract. The procedure followed was that [Cabildo] requested the office of Reyes for measurement; then Reyes assign[s] an employee to do the measurement; the employee was accompanied by [Cabildo] or his authorized representative for the measurement; upon completion of the measurement, the computations were submitted to Engr. Manuel Flores, the Supervisor assigned to the work area; if Engr. Flores approved the computation, it was then recommended to Reyes for liquidation; and Reyes thereafter issued the Liquidation Memo to schedule payment of work accomplished. [Cabildo] was represented in the measurement by either his foreman or his son while Mr. Licuben was assigned to do the measurement for the company. x x x x On May 30, 1983, Velasco left [Cabildo] as the latters general foreman and went on his own as contractor, offering his services for painting jobs. On June 6, 1983, Velasco entered into a Contract of Work with [Benguet Corporation], represented by Godofredo Fider, to paint the Breakham bridge at Antamok Mine, Barangay, Loakan, Itogon Benguet for the sum of P2,035.00. x x x Apparently, the above contract of work of Velasco is in Antamok while the Contract of Work of [Cabildo] is in Balatoc. On June 9, 1983 (6/9/83), Reyes recommended approval of the Quotation of Velasco for the painting of the inner mill compound of Balatoc for Areas 2, 3, 5, 6 & 7 and approved by Fider on June 13, 1983 at a lower price schedule per sq. meter than that of [Cabildo]. Hence, on June 13, 1983, Rolando Velasco entered into another Contract of Work with [Benguet Corporation], represented by Godofredo Fider, to paint the underneath of Mill Buildings No. 702 at Balatoc Mill, Barangay Virac, Itogon, Benguet and install the necessary scaffoldings for the work for the sum of P5,566.60. On the same date of June 13, 1983, Velasco entered into another Contract of Work with [Benguet Corporation], represented by Godofredo Fider, to scrape, clean and paint the structural steel members at the Mill crushing plant at Balatoc Mill, Barangay Virac, Itogon, Benguet and install the necessary scaffoldings for the purpose for the consideration of P8,866.00. x x x x [Cabildo] complained and protested but Reyes said the Contract of Work of [Cabildo] covers only the painting of exterior of the Mill Buildings in Balatoc but not the interior although the same was not expressly stated in the Contract. This caused the souring of relationship of [Cabildo] and [petitioners] because at that time [Cabildo] had already painted the top roof and three (3) sidings both interior and exterior of Mill Building 702.[8] Because of these developments, Cabildo enlisted the services of Atty. Galo Reyes, who wrote both Fider and Jaime Ongpin, President of Benguet Corporation, regarding the ostensibly overlapping contracts of Cabildo and Velasco. Parenthetically, at some point in June 1983, Cabildo was allowed to paint the interiors of various parts of the Mill Buildings, specifically, the Mill and Security Office, Electrical Office, Baldemor Office, and Sala Shift Boss.

On June 30, 1983, Cabildo was prevented from continuing work on the job site, as Fider and Reyes were supposedly investigating Cabildos participation in the incident where a galvanized iron sheet fell on one of the agitator tanks. For three (3) months, Cabildo was not allowed to perform work stipulated in the agreement and complete painting of the Mill Buildings and Bunkhouses at Balatoc. He was only allowed to do repairs for previously accomplished work. Further, Benguet Corporation continued to withhold payment of Cabildos last work accomplishment for the period from June 16 to 30, 1983. On July 2, 1983, Benguet Corporations Group Manager for Legal and Personnel, Atty. Juanito Mercado, who prepared and notarized the Contract of Work, responded to Cabildos counsel, declaring that Benguet Corporations Contract of Work with Cabildo only covered exterior painting of the Mill Buildings and Bunkhouses, whereas the contract with Velasco covered interior painting of the Mill Buildings, steel structures and underneath the GI Roofing. Eventually, upon his visit to Benguet Corporation accompanied by counsel, Cabildo was paid for the June 16 to 30, 1983 work accomplishment. In this regard, petitioner Reyes issued Liquidation Memo dated July 25, 1983 which, curiously, had an intercalation that payment made was for the exterior painting of the Mill Buildings in Balatoc. As regards the repairs of defects and leaks of previous work accomplishments, which were the only job Cabildo was allowed to work on, these were repaired satisfactorily and Cabildo was paid the previously withheld amount of P19,775.00. Once again, in August of the same year, Cabildo wrote petitioner Belmonte appealing his preclusion from continuing the Contract of Work and the overlapping contracting jobs continuously given to Velasco. Yet, Cabildo was still disallowed to perform the job under the Contract of Work for the month of September up to December 1983. With respect to the Bunkhouses, the petitioners did not require Cabildo to paint them. Neither did petitioners provide the materials needed therefor. The petitioners simply claimed that Cabildo was not at all allowed to perform work on the Bunkhouses due to the rainy season and because of the financial difficulties Benguet Corporation was then experiencing. Thus, Cabildo filed a complaint for damages against the petitioners and Velasco before the RTC, claiming breach by Benguet Corporation of their Contract of Work. Further, Cabildo sought damages for the petitioners harassment and molestation to thwart him from performing the job under the Contract of Work. Lastly, Cabildo prayed for damages covering lack of payments and/or underpayments for various work accomplishments. The RTC rendered a decision in favor of Cabildo and found the petitioners, as well as Velasco, defendant before the RTC, jointly and severally liable to Cabildo for: (1) P27,332.60 as actual damages; (2) P300,000.00 as indemnification for unrealized profit; (3) P100,000.00 as moral damages; (4) P50,000.00 as exemplary damages; (5) P30,000.00 as attorneys fees; and (5) costs of suit. On appeal, the CA affirmed with modification the RTCs ruling. The appellate court excluded Velasco from liability for the foregoing damages. Hence, this appeal by the petitioners positing the following issues: WHETHER [OR NOT] THERE IS BREACH OF CONTRACT AS BASIS FOR AWARD OF DAMAGES AND ATTORNEYS FEES[?] WHETHER [OR NOT] THE COUNTERCLAIM OF PETITIONERS SHOULD BE GRANTED[?][9] We deny the petition. We see no need to disturb the findings of the trial and appellate courts on the petiti oners liability for breach of the subject Contract of Work. It is a well-entrenched doctrine that factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and are conclusive between the parties and even on this Court.[10] Nonetheless, jurisprudence recognizes highly meritorious exceptions, such as: (1) when the findings of a trial court are grounded entirely on speculations, surmises or conjectures; (2) when a lower courts inference from its factual findings is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the findings of the

appellate court go beyond the issues of the case or fail to notice certain relevant facts which, if properly considered, will justify a different conclusion; (5) when there is a misappreciation of facts; and (6) when the findings of fact are conclusions without mention of the specific evidence on which they are based, are premised on the absence of evidence, or are contradicted by evidence on record.[11] It is noteworthy that none of these exceptions which would warrant a reversal of the assailed decision obtains herein. The petitioners insist that the CA erred in awarding Cabildo damages because his Contract of Work with Benguet Corporation only covered painting of the exterior of the Mill Buildings and Bunkhouses at the Balatoc mining site. In effect, petitioners claim that their respective contracts with Cabildo and Velasco cover separate and different subject matters, i.e., painting of the exterior and interior of the Mill Buildings, respectively. We cannot agree with the petitioners obviously strained reasoning. The Contract of Work with Cabildo did not distinguish between the exterior and interior painting of the Mill Buildings. It simply stated that Cabildo shall paint the Mill Buildings at Balatoc Mill and all the Bunkhouses at Balatoc, Itogon, Benguet. There is nothing in the contract which will serve as a basi s for the petitioners insistence that Cabildos scope of work was merely confined to the painting of the exterior part of the Mill Buildings. To bolster their position, the petitioners contend that there is an apparent conflict between the wording of the contract and the actual intention of the parties on the specific object of the painting job. The petitioners argue that Cabildo knew of Benguet Corporations practice to have only the exterior of buildings painted and was, therefore, aware that the Contract of Work referred only to the exterior painting of the Mill Buildings, excluding the interior portion thereof. Thus, the petitioners submit that when there is a conflict as regards the interpretation of a contract, the obvious intention of the parties must prevail. We reject the petitioners flawed contention. Apart from the petitioners self-serving assertion, nothing in the record points to the parties intention different from that reflected in the Contract of Work. To the contrary, the records reveal an unequivo cal intention to have both the exterior and interior of the Mill Buildings painted. Article 1370 of the Civil Code sets forth the first rule in the interpretation of contracts. The article reads: Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. In the recent case of Abad v. Goldloop Properties, Inc.,[12] we explained, thus: The cardinal rule in the interpretation of contracts is embodied in the first paragraph of Article 1370 of the Civil Code: [i]f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. This provision is akin to the plain meaning rule applied by Pennsylvania courts, which assume s that the intent of the parties to an instrument is embodied in the writing itself, and when the words are clear and unambiguous the intent is to be discovered only from the express language of the agreement. It also resembles the four corners rule, a principle which allows courts in some cases to search beneath the semantic surface for clues to meaning. A courts purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by t hem. The process of interpreting a contract requires the court to make a preliminary inquiry as to whether the contract before it is ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written terms of the contract are not ambiguous and can only be read one way, the court will interpret the contract as a matter of law. If the contract is determined to be ambiguous, then the interpretation of the contract is left to the court, to resolve the ambiguity in the light of the intrinsic evidence. In our jurisdiction, the rule is thoroughly discussed in Bautista v. Court of Appeals: The rule is that where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids. The intention of the parties must be gathered from that language, and from that language alone. Stated differently, where the language of a written contract is clear and unambiguous, the contract must be taken to

mean that which, on its face, it purports to mean, unless some good reason can be assigned to show that the words should be understood in a different sense. Courts cannot make for the parties better or more equitable agreements than they themselves have been satisfied to make, or rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter them for the benefit of one party and to the detriment of the other, or by construction, relieve one of the parties from the terms which he voluntarily consented to, or impose on him those which he did not. In the case at bench, the Contract of Work leaves no room for equivocation or interpretation as to the exact intention of the parties. We also note that Benguet Corporations counsel drafted and prepared the contract. Undoubtedly, the petitioners claimed ambiguity in the wordings of the contract, if such an ambiguity truly exists, cannot give rise to an interpretation favorable to Benguet Corporation. Article 1377 of the Civil Code provides: Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. Still, the petitioners insist that the parties intention was different, and that Cabildo knew of, and acquiesced to, the actual agreement. We remain unconvinced. Even if we were to patronize the petitioners stretched logic, the supposed intention of the parties i s not borne out by the records. Article 1371 of the same code states: Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. In stark contrast to the petitioners assertions are the following: First, the procedure for work accomplishments and payments followed by the parties required representatives and/or employees of Benguet Corporation to closely monitor Cabildos performance of the job. Notably, when Cabildo painted both the exterior and interior of the Mill Buildings except for the interior of the refinery buildings where gold is being minted, he was under the close supervision of petitioners Reyes and Fider. If, as the petitioners claim, the intention was only to paint the exterior of the Mill Buildings, then Reyes and Fider, or any of Benguet Corporations representatives assigned to monitor the work of Cabildo, should have, posthaste, stopped Cabildo from continuing the painting of the interiors. Moreover, the materials for the painting work were provided by Benguet Corporation as listed and requested by Cabildo. The petitioners had the opportunity to disapprove Cabildos requests for materials needed to paint the interiors of the Mill Buildings, but they failed to do so. Second, although Cabildo concedes that he knew of Benguet Corporations practice to have only the exteriors of buildings painted, he refutes the petitioners claim that the aforesaid practice extended to the painting of the Mill Buildings. Cabild o asseverates that the practice of painting only the exterior of buildings was confined to the Bunkhouses. Evidently, Cabildos knowledge of the claimed practice, as qualified by Cabildo himself, does not translate to an inference that the parties had intended something other than what is written in the Contract of Work. Lastly, a singular document, the Liquidation Memo dated July 25, 1983 issued by petitioner Reyes, further highlights the petitioners lame attempt to paint an intention different from the specific language used in the Contract of Work. This belated qualification in the Liquidation Memo stating that payment was being made for the exterior painting of the Mill Buildings speaks volumes of the parties actual intention captured in the Contract of Work, as none of the Liquidation Memos issued by the petitioners for Cabildos previous work accomplishments qualified the painting performed by Cabildo on the Mill Buildings. From the foregoing, it is crystal clear that the petitioners breached the Contract of Work with Cabildo by awarding Velasco a contract covering the same subject matter, quite understandably, because Velasco offered a price schedule lower than Cabildos. We completely agree with the uniform findings of the lower courts that the petitioners waylaid Cabildo and prevented him from performing his obligation under the Contract of Work. With respect to the painting of the Bunkhouses, the petitioners claim that Cabildo was not allowed to paint them due to the rainy season and because of the financial difficulties of Benguet Corporation. Suffice it to state that the Contract of Work did

not provide for a suspension clause. Thus, Benguet Corporation cannot unilaterally suspend the Contract of Work for reasons not stated therein. Consequent to all these disquisitions, we likewise affirm the lower courts dismissal of the petitioners counterclaim. WHEREFORE, premises considered, the petition is hereby DISMISSED. The Court of Appeals decision in CA-G.R. CV No. 37123 is AFFIRMED. Costs against the petitioners. SO ORDERED. G.R. No. 55691 May 21, 1992 ESPERANZA BORILLO, in her behalf and in behalf of her children, petitioner, vs. HONORABLE COURT OF APPEALS and CATALINA BORILLO, respondents. DAVIDE, JR., J.: In this petition for review on certiorari under Rule 45 of the Rules of Court filed on 24 November 1980, petitioner urges this Court to review and reverse the decision 1 of the Court of Appeals (Third Division) in C.A.-G.R. No. 64536-R, promulgated on 3 September 1980, which reversed and set aside the 3 June 1978 decision of Branch II of the then Court of First Instance (now Regional Trial Court) of Abra in Civil Case No. 1043. On 10 February 1977, petitioner, for herself and on behalf of her children, filed before the abovementioned trial court a complaint against private respondent and Marcos Borillo for the recovery of several parcels of land located at Bugbuguis, Quillat, Langiden, Abra particularly described in said complaint, under the first cause of action, as follows: (a) A parcel of land (Riceland unirr. and pastureland) . . . with an area of 1231 sq. m.; with assessed value in the sum of P40.00; under Tax Declaration No. 6319 in the name of Esperanza Borillo, et al.; (b) A parcel of land (Riceland unirr.) . . . with an area of 980 sq. m.; with an assessed value in the sum of P40.00; under Tax Declaration No. 6320 in the name of Esperanza Borillo, et al.; (c) A parcel of land (Riceland unirr.) . . . with an area of 698 sq. m.; with assessed value in the sum of P20.00; under Tax Declaration No. 6321 in the name of Esperanza Borillo, et al.; (d) A parcel of land (Cornland) . . . with an area of 570 sq. m.; with an assessed value of P20.00; under Tax Declaration No. 6322 in the name of Esperanza Borillo, et al. 2 and one-fifth (1/5) undivided portion of two (2) parcels of land, also located in the same place as the above four (4) parcels, particularly described under the second cause of action, thus: (e) A parcel of land (Riceland unirr.) . . . with an area of 1440 sq. m.; with an assessed value of P60.00; under Tax Declaration No. 1745 in the name of Venancio Borillo; (f) A parcel of land (Cornland) . . . with an area of 684 sq. m.; with an assessed value of P20.00; under Tax Declaration No. 0746 in the name of Venancio Borillo. 3 The complaint was docketed as Civil Case No. 1043. In the complaint, petitioner alleges that the abovementioned parcels (a), (b), (c) and (d) were originally owned by her late husband, Elpidio Borillo, with whom she had four (4) children, namely: Patricia, Melecio, Bonifacia and Quirino. Although said parcels of land were unregistered, they were declared in 1948 in the name of Elpidio under Tax Declaration Nos. 0731, 0732, 0733 and 0734, respectively. 4 Elpidio had been in peaceful, public, continuous and uninterrupted possession thereof in concept of owner even before his marriage to petitioner and until his death in 1970. After his death, petitioner continued to possess and cultivate said parcels of land and enjoy the fruits thereof until sometime in 1971-1972 when private respondent and Marcos Borillo, Elpidio's siblings, forcibly and unlawfully dispossessed her of the property. Despite repeated demands, Marcos and the private respondent refused to return the property to the petitioner and her children. In 1974, new Tax

Declarations, namely Nos. 6319, 6320, 6321 and 6322 5 for parcels (a), (b), (c) and (d), respectively, were issued in her name. Upon the other hand, parcels (e) and (f), also unregistered, were inherited by Elpidio, his brother Marcos and sisters Catalina, Aurelia and Rosita, from their father, Venancio Borillo. Elpidio's 1/5 pro-indiviso share therein was unlawfully taken by private respondent sometime in 1971; the latter refused to return it to petitioner and her children, who are Elpidio's heirs, despite repeated demands. Petitioner then prays that judgment be rendered declaring her and her children owners of parcels (a), (b), (c) and (d), as well as the 1/5 pro-indiviso portion of parcels (e) and (f), and ordering the private respondent and Marcos Borillo to pay actual and moral damages plus costs. In their Answer filed on 14 March 1977, private respondent claims that parcels (a), (c) and (d) were sold to her by her late brother Elpidio in 1935, while Marcos Borillo claims that parcel (b) was sold to him by Elpidio sometime in 1937, long before Elpidio's marriage to petitioner. Although they did not declare these parcels for taxation purposes in their respective names, they immediately took possession and occupied the same as owners thereof. Private respondent had been paying the realty taxes on parcels (a), (c) and (d) since 1948 6 and explains her failure to secure in her name tax declarations for said parcels during Elpidio's lifetime by alleging that she trusted him because he was her brother and he had assured her that she could transfer in her favor the title thereto anytime. After the Second World War, Elpidio and Rosita, another sibling, sold to her their respective undivided shares in parcels (e) and (f). On 15 March 1977, private respondent alone filed an Amended Answer. On the other hand, on 5 April 1977, Patricia and Melencio Borillo filed a motion to withdraw as co-plaintiffs on the ground that they did not authorize their inclusion as such and that the private respondent is the true and lawful owner of the land in question. 7 At the trial, private respondent relied heavily on Exhibit "3", a private document purportedly showing that Elpidio sold to her all his property for P40.00, and Exhibit "4", which she claims to be a deed of sale of parcels (a), (c) and (d) allegedly executed by Elpidio Borillo in 1935. Upon the other hand, Marcos Borillo claimed that the deed of sale evidencing the sale to him of parcel (b) was lost during the Second World War. Both parties claim actual possession of the property. Private respondent and Marcos Borillo even claimed possession for more than thirty (30) years. After trial on the merits, the lower court rendered on 3 June 1978 a decision in favor of herein petitioner, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered declaring the plaintiffs as the true owners of parcels A, B, C and D described in par. 4 of the complaint and as co-owners of parcels E and F described in par. 6 of the complaint with Rosita Borillo, Aurelia Borillo and the defendants Catalina Borillo and Marcos Borillo. With costs against the defendants. 8 The trial court arrived at this decision on the basis of the following findings of fact: The claim of ownership by the plaintiffs with respect to the four parcels of land described in par. 4 of the complaint is preponderantly established by Tax Declaration Nos. 731, 732, 733 and 734, Exhibits, "A, A-1, A-2 and A-3" for the plaintiffs. These tax declarations covering the four parcels of land in question are tax declarations issued in 1948 and is (sic) in the name of Elpidio Borillo, husband of plaintiff Esperanza Borillo. Defendants never declared it (sic) in their name (sic) and no action or attempt whatsoever was made by the defendants to declare it (sic) in their name (sic) during the lifetime of Elpidio Borillo. It was only after the death of Elpidio Borillo and the institution of this action by the plaintiffs that defendants took action and strangely declared it (sic) in their names. Obviously, the bulk of evidence for the plaintiffs are (sic) the tax declarations in the name of Elpidio Borillo which do not absolutely prove their ownership. But the circumstances obtaining in this case renders (sic) the tax declarations Exhibits "A, A-1, A-2 and A-3", reliable and predominantly point that plaintiffs are owners of the four parcels of land described in par. 4 of the complaint as against the plaintiffs (sic). First, it will be noted that Exhibits A, A-1, A-2 and A-3 were prepared and issued long before the death of Elpidio Borillo. He was then a bachelor having married the plaintiff Esperanza Borillo in 1950. Defendant Catalina Borillo married long before the 2nd World War. Defendant Marcos Borillo likewise married before World War II. Defendants have properties declared in their names. Marcos Borillo accompanied the Assessors who measured the four parcels of land according to him (sic). Despite the status of the parties and the Assessors having been accompanied by

defendant Marcos Borillo, still the four parcels of land were declared in the name of Elpidio Borillo. It is unconceivable (sic) why it was (sic) declared in the name of Elpidio Borillo, if it does (sic) not belong to him. True, that tax declarations are not conclusive proof of ownership, but it cannot be gainsaid especially in rural areas like Langiden, Abra where lands are not surveyed and titled, that tax declarations are strong evidence of possession and ownership. Secondly, the four parcels of land described in par. 4 of the complaint were declared in the name of Elpidio Borillo for 29 years and no action whatsoever was taken by the defendants to have the tax declarations (Exhibits A, A-1, A-2 and A-3) be (sic) cancelled and declared the lands (sic) in their names during the lifetime of the declared owner Elpidio Borillo and immediately after his death. It was only in 1977 after the filing of the complaint and after the plaintiffs caused the cancellation of Exhibits A, A-1, A-2 and A-3 and declared the lands in their names when defendants attempted to declare it (sic) also in their names. The unfathomable tolerance of the defendants of having the four (4) parcels of land be (sic) declared in the name of their deceased brother, Elpidio Borillo in 1948 and remained (sic) in his name after his marriage with (sic) the plaintiff Esperanza Borillo in 1950 even (sic) after his death in 1971, is fatal and strongly negate their (sic) defendants' claim of ownership. No person like the defendants will ever allow his/her property be (sic) declared in the name of another for twentynine (29) years. The fact that the lands were declared in the name of Elpidio Borillo for twenty-nine (29) years coupled by (sic) his actual possession during his lifetime until his death in 1971 as testified to by Esperanza Borillo and Clemente Llaneza who is an uninterested witness strongly outweighed the evidence for the defendants and convincingly indicate that the four parcels of land described in par. 4 of the complaint really belong to Elpidio Borillo. The claim of defendants that they are (sic) in actual possession before World War II up to the present is persuasively belied by Exhibits A, A-1, A-2 and A-3 and the testimony of Clemente Llaneza. The claim of defendant Catalina Borillo that she purchased parcels A, C and D described in par. 4 of the complaint from her deceased brother Elpidio Borillo before World War II as evidence (sic) by Exhibits "3" and "4" appears unreliable and incredible. Exhibit "3" which is an acknowledgment receipt dated May 12, 1946 made no mention of what property has been sold. There is no evidence of any transfer of ownership. In fact, there is nothing clear from the evidence as to what land of Elpidio Borillo is referred to in Exhibit "3". From the terms of Exhibit "3" and the alleged consideration thereof, it thus becomes obvious that it is only a receipt evidencing a loan of P40.00. Exhibit "4" (receipt) which is the main basis of the claim of ownership by defendant Catalina Borillo with respect to parcels A, C and D in par. 4 of the complaint, appears unreliable and cannot prevail against the evidence for the plaintiffs. This Exhibit "4" for defendant Catalina Borillo is undated and unsigned. Defendant Catalina Borillo testified that she does not know the contends of Exhibit "4". Elpidio Borillo as shown by Exhibit "3" for defendant Catalina Borillo and Exhibits E and F for the plaintiffs knows how to write his name. Yet, Exhibit "4" was not signed by him. Aside from the patent defects of Exhibit "4" on its face which renders it unreliable, it will be noted that during the pre-trial proceedings, defendant Catalina Borillo presented Exhibit "4" to support her claim as alleged in her answer of having purchased parcels A, C and D from Elpidio Borillo in 1935. Clearly embodied, however, in Exhibit "4" are tax declarations Nos. 0732, 0731 and 0734 which are indeed tax declarations in 1948 in the name of Elpidio Borillo. Considering that Exhibit "4" is a document executed in 1935 according to the defendant Catalina Borillo, why are Tax Declarations Nos. 731, 732 and 734 which were issued only in 1948 incorporated? The inclusion of non-existent document (sic) in Exhibit "4" at the time of its alleged execution absolutely renders Exhibit "4" wholly unworthy and undeserving of any credence. 9 Private respondent appealed from the adverse decision to the respondent Court. Her co-defendant, Marcos Borillo, did not. The appeal was docketed as C.A.-G.R. No. 64536-R. In her Appellant's Brief, private respondent assigns the following errors: I. THAT THE FACTS RELIED UPON IS (sic) NOT SUPPORTED BY EVIDENCE. II. THAT THE DECISION IS NOT IN ACCORDANCE WITH LAW. On 3 September 1980, the respondent Court promulgated its decision 10 reversing the decision of the trial court, thus: WHEREFORE, the judgment appealed from is hereby set aside and another judgment is hereby rendered declaring defendant Catalina Borillo as the owner of parcels (a), (c) and (d) and of the one-fifth portion of Elpidio Borillo in parcels (e) and (f); that defendant Marcos Borillo is the owner of parcel (b); with costs against the plaintiffs. SO ORDERED.

The respondent Court made the following disquisitions to support its decision: We are convinced that the preponderance of the evidence tilt (sic) heavily in favor of defendant. Defendant established she has been in possession in the concept of owner of said three parcels of land (a), (c) and (d) since her purchase of the same long before the war and she cultivated the same in the concept of owner, paying the real estate taxes and thereafter declaring it in her name while Marcos Borillo acquired parcel (b) from Elpidio since 1938 of which he took possession in the concept of owner, and declared the same in his name paying the real estate taxes. No less than Melecio Borillo, son of plaintiff Esperanza, not only withdrew as party plaintiff with his sister Patricia but he even testified that he knew from the very mouth of his father Elpidio while he was still alive that he sold the property in question to defendant Catalina Borillo. It has also been shown that Elpidio Borillo sold his 1/5 portion of parcels (e) and (f) also before the war to defendant and she had been in continuous possession since then in the concept of owner. Under Article 1137 of the Civil Code, such uninterrupted, adverse, open possession for thirty (30) years by defendants regardless of their title or good faith upholds said defendants' right over the property. (Parcotillo vs. Parcotillo, 12 SCRA 435, 440). In finding for the plaintiffs the trial court relied on the tax declarations in the name of Elpidio as proof that plaintiffs are the owners of the questioned property since the property is untitled; that for 29 years no action was taken by defendants to declare the property in their name (sic) and it was only in 1977 after the filing of the complaint that defendants so declared the properties in their name (sic); that Exhibit 4 is unreliable being unsigned by Elpidio when there is evidence that he could sign his name; that Exhibit 3 did not mention the property sold; that Exhibit 4 was made in 1935 as alleged in the answer but surprisingly it embodied Tax Declarations 731, 732 and 734 which were issued only in 1948; and that the alleged sale of the right of Elpidio over parcels (e) and (f) are without receipts. We disagree. Declaration of ownership for taxation purposes, or assessment declaration and tax receipts do not constitute evidence of ownership. They are only prima facie evidence of possession. (Evangelista vs. Tabayuyong, 7 Phil. 607; Casimiro vs. Fernandez, 9 Phil. 562) However, if the holder of a (sic) land presents a deed of conveyance in his favor from the former owner thereof to support his claim of ownership, the declaration of ownership and tax receipts relative to the property may be used to prove good faith on his part in occupying and possessing the same. (Elumbaring vs. Elumbaring, 12 Phi. 384) And while it is true that tax receipts do not prove titled (sic) to a land, nevertheless when considered with the actual possession of the property by the applicant, they constitute evidence of great weight in support of the claim of title of ownership by prescription. (Viernes vs. Agpaoa, 41 Phil. 286; Land Registration and Mortgages by Ventura, pp. 125-126) Plaintiffs admitted that defendants are in possession of the lands in question and the records show that even during the lifetime of Elpidio, the defendant had been paying the real property taxes of the property (Exhs. 1 to 1-I). The sale of parcels (a), (c) and (d) to defendant is evidenced by Exhibits 3 and 4. Although Exhibit 3 does not indicate the property subject of the sale, such deficiency can be attributed to the fact that this was a document executed between brother and sister without the assistance of a lawyer but testimonial evidence has been adduced that cured this defect. True it is that Exhibit 4 appears not to have been signed by Elpidio and he merely imprinted a cross over his name when it appears that he knew how to sign. However, defendants Catalina and Marcos Borillo categorically testified that Elpidio signed his name only by copying a sample. Hence, it is understandable if Elpidio did not sign Exhibit 4 for he must not have been furnished a (sic) guide to be copied. No evidence was adduced that Exhibit 4 was actually executed in 1935. What was established is that Elpidio sold said three parcels to defendant Catalina before the war. In confirmation of said sale, Exhibit 4 must have been executed on or before 1948 that is why it reflects the Tax Declarations of said property to be effective in the same year. On the other hand, outside of the fact that the property remained to be declared in the name of Elpidio plaintiffs have not adduced any other evidence to buttress their claim of ownership. Plaintiff Esperanza paid for the real property taxes of the property only on June 22, 1977 after the complaint was filed in court. (Exhibit C) It is not improbable that the reason why the properties remained in the name of Elpidio inspite of the fact that it has long been sold to defendants is because this is a sale between brother and sister where mutual trust and confidence is to be expected. Indeed, during the lifetime of Elpidio he never questioned the acts of ownership exercised by the defendants over the property and even after his death in 1970, plaintiff Esperanza only remembered to assert their alleged right in 1976 when she attempted to talk to defendant who told her it was already sold to them and yet it was only in 1977 that the complaint was filed.

Petitioner took this present recourse asking Us to review the respondent Court's findings of facts and reverse its decision on the ground that the same is based solely on "speculation, surmise and conjecture," and that it committed a "misapprehension of facts." After private respondent filed her Comment and the petitioner submitted a Reply, this Court gave due course to the petition 11 and required the petitioner to submit her Brief within thirty (30) days from notice, 12 which she complied with. 13 Private respondent subsequently filed her Brief. 14 The petition is meritorious. To begin with, the respondent Court committed a grave error in reversing the trial court's judgment insofar as it concerns defendant Marcos Borillo. As earlier stated, the latter did not appeal from the trial court's decision. As against him, and more particularly with respect to parcel (b), the decision has long become final and the respondent Court is without jurisdiction to review the same. 15 Otherwise stated, beyond the period to appeal, a judgment is no longer within the scope of the power of review of any court. 16 The appeal interposed by private respondent did not benefit Marcos Borillo because the former does not have anything to do with parcel (b) and the defense in respect thereto is exclusive to the latter. The respondent Court likewise erred in reversing the trial court and ruling that private respondent is the owner of parcels (a), (c) and (d) and Elpidio Borillo's 1/5 pro-indiviso share in parcels (e) and (f). It is of course settled that the appellate court's findings of fact are binding and must be respected by this Court. 17 There are, however, recognized exceptions thereto, 18 among which are when the factual findings of the trial court and the appellate court are conflicting, 19 when they are totally devoid of support in the record or are so glaringly erroneous as to constitute serious abuse of discretion. 20 These exceptions obtain in the present case. The fact that parcels (a), (c) and (d) were originally owned by Elpidio Borillo is not disputed by private respondent. In fact, she claims to have derived her title over the same from the former through a sale in 1935. Thus, the question to be resolved is whether or not Elpidio Borillo did in fact sell the said parcels of land to the private respondent. To substantiate her claim, private respondent presented two (2) documents, Exhibits "3" and "4". The trial court in its judgment described Exhibit "3", dated 12 May 1946, as a mere acknowledgment receipt of a loan of P40.00 and not a sale for it does not mention any property sold and is not acknowledged before a notary public. It then concluded that said instrument is a mere receipt evidencing a loan. On the other hand, Exhibit ''4'' is an undated and unsigned document written in lead pencil on simple grade paper. The instrument has no witnesses, is not acknowledged before a notary public and has a mere cross over the written name of Elpidio Borillo. It was duly proven that Elpidio knew how to write and sign his name. Although Exhibit "4" was purportedly executed in 1935, the same mentions Tax Declaration Nos. 0731, 0732, 0733 and 0734 issued in 1948 in the name of Elpidio Borillo. Private respondent herself testified that she had no knowledge of the contents of said instrument. The trial court ruled Exhibit "4" as "wholly unworthy and undeserving of any credence." In reversing the foregoing findings, the respondent Court tried to justify the deficiencies and discrepancies in Exhibit "3" by saying that the absence of specifications as to what property was sold is understandable because the transaction was between brother and sister. It added that this defect was cured by testimonial evidence. It made no attempt, however, to explain the variance in the date of the alleged sale (1935) and the date of the instrument (1946). As to Exhibit "4", the respondent Court accepted private respondent's explanation for the absence of the signature of Elpidio Borillo on the purported deed of sale saying that contrary to petitioner's assertion, Elpidio did not really know how to write his name. Private respondent and Marcos Borillo testified that Elpidio's signature appeared on his voter's registration record and voter's ID card 21 only because he was given a sample to copy. They declared that unlike those occasions, at the time of the sale, Elpidio was not given any sample to copy; this explains why he just printed a cross over his name. As to why it mentions tax declarations issued in 1948, although it is claimed to have been executed in 1935, the respondent Court theorizes and speculates that:

. . . In confirmation of said sale, Exhibit 4 must have been executed on or before 1948 that is why it reflects the Tax Declarations of said property to be effective in the same year. 22 It is thus clear that what was originally submitted by private respondent as the original deed of sale was later accepted by the respondent Court as a deed of confirmation of sale. Both Exhibits "3" and "4" are private documents. Hence, before they may be received in evidence, their due execution and authenticity must first be proven by the party presenting them. 23 At the hearing of this case before the trial court, the controlling rule on this point was Section 21, Rule 132 of the Rules of Court which provided: Sec. 21. Private writing, its execution and authenticity, how proved. Before any private writing may be received in evidence, its due execution and authenticity must be proved either: (a) By anyone who saw the writing executed; (b) By evidence of the genuineness of the handwriting of the maker; or (c) By a subscribing witness. 24 Private respondent did not present anyone who actually saw the execution of Exhibits "3" and "4", witnessed Elpidio affix his signature on Exhibit "3" or make the cross over his written name in Exhibit "4". There are no subscribing witnesses. The due execution then of Exhibits "3" and "4", as the alleged deeds of sale transferring title over said parcels of land to private respondent, was not satisfactorily proven; thus, the same can not be received in evidence. Even if We are to assume that Exhibits "3" and "4" are admissible in evidence, they still do not satisfactorily prove the transfers of titles over the subject parcels to the private respondent. As earlier pointed out, Exhibit "3" makes no mention of any property sold. Hence, it hardly qualifies as a deed of sale. It suffers from a patent and not just an intrinsic ambiguity. The respondent Court then committed an error by giving credence to the testimonies offered to cure such ambiguity. It disregarded the parol evidence rule then applicable, namely, Section 7, Rule 130 of the Rules of Court, which provided as follows: Sec. 7. Evidence of written agreement. When the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and, therefore, there can be, between the parties and their successors in interest, no evidence of the terms of the agreement other than the contents of the writing, except in the following cases: (a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties, or the validity of the agreement is put in issue by the pleadings; (b) When there is an intrinsic ambiguity in the writing. The term "agreement" includes wills. 25 Before parol evidence may be admitted in order to identify, explain or define the subject matter of a writing, it must first be shown that the writing itself already contains a description sufficient to serve as a foundation for the admission of such parol evidence; the evidence should also be consistent with the writing. Otherwise stated, in order to admit parol evidence to aid in the description of the subject matter of a deed or other writing, there must be a description that will serve as a foundation for such evidence; the writing must at least give some data from which the description may be found and made certain. Parol evidence is not admissible to identify the property where the description thereof is so vague as to amount to no description at all. In other words, parol evidence is not permitted to supply a description, but only to apply it. 26 In his Commentary on the Rules of Court, 27 former Chief Justice Manuel V. Moran explains the rule in the evident of patent ambiguity, as is the case in Exhibit "3":

. . . The rule is that "if the words of a document are so defective or ambiguous as to be unmeaning, no evidence can be given to show what the author of the document intended to say." (Steph, Evidence, Art. 91) The reason for the rule, in the language of Mr. Justice Story, is that "if the language be too doubtful for any settled construction, by the admission of parol evidence you create and do not merely construe the contract. You attempt to do that for the party which he has not chosen to do for himself; and the law very property denies such an authority to courts of Justice." (Peisch v. Dickson, Fed. Cas. No. 10, 911, 1 Mason, 9.) As Lord Bacon said, "Ambiguitas patens cannot be holpen by averment." (Bacon, Max., 23) A case of patent ambiguity is that of a deed wherein "a parcel of land" without description is donated. The donation is void. The uncertainty cannot be explained by parol evidence. (Wigmore on Evidence, 2d. ed., p. 414.) The following appears to be the most accurate and most comprehensive statement of the rule regarding patent ambiguity: "In other words and more generally, if the court, placing itself in the situation in which the testator or contracting party stood at the time of executing the instrument, and with a full understanding of the force and import of the words, cannot ascertain his meaning and intention from the language of the instrument, then it is a case of incurable, hopeless uncertainty and the instrument is, therefore, so far inoperative and void." (Palmer v. Albee, 50 Ia., 429, 432, quoting 1 Greenleaf on Evidence, par. 300.) As to Exhibit "4", We agree with the trial court that it could not have been prepared in 1935, as contended by private respondent, because it makes reference to Tax Declarations issued in 1948, thirteen (13) years later. Common sense and logic reject such contention. Unfortunately, the respondent Court belabored the explanation that Exhibit "4" must have been executed on or before 1948 to confirm the prior sale. This is unacceptable as it is purely conjectural. Absent any evidence that it was signed by Elpidio Borillo, it is not difficult to conclude that this document does not proceed from any legitimate source. It is one which could easily be fabricated. The trial court did not then err when it considered Exhibit "4" as "wholly unworthy and undeserving of any credence." It is not also true, as was held by the respondent Court, that the conclusion of the trial court that Elpidio Borillo was in possession of the property in concept of owner until his death, is based solely on the tax declarations in his name. As shown earlier, the court considered the testimonies of the petitioner and one Clemente Llaneza whom the trial court described as "an uninterested witness." Thus: . . . The fact that the lands were declared in the name of Elpidio Borillo for twenty-nine (29) years coupled by his actual possession during his lifetime until his death in 1971 as testified to by Esperanza Borillo and Clemente Llaneza who is an uninterested witness strongly outweighed the evidence for the defendants and convincingly indicate that the four parcels of land described in paragraph 4 of the complaint really belong to Elpidio Borillo. . . . It is thus clear that the authorities cited by the respondent Court on the probative value of the tax declarations favor the herein petitioner and not the private respondent. For indeed, while tax declarations and tax receipts do not constitute evidence of ownership, they are prima facie evidence of possession. Accordingly, since Elpidio Borillo, during his lifetime, and then the petitioner, after his death, secured and were issued tax declarations for the parcels of land in question, and were in fact in possession thereof, the excuse offered by private respondent as to her failure to obtain the tax declarations deserves no consideration at all. The flimsiness or implausibility of the excuse becomes more apparent when We consider the findings of the trial court that private respondent has other properties declared in her name for taxation purposes and that neither she nor Marcos objected to the measurement by the assessors of the four (4) parcels for Elpidio Borillo. The conclusion then is inevitable that the late Elpidio Borillo did not sell and alienate parcels (a), (c) and (d) to private respondent. As to parcels (e) (f), private respondent presented no deed of sale in her favor. Private respondent can not likewise seek refuge under a claim of ownership by virtue of acquisitive prescription. Acquisitive prescription of dominion requires that there be public, peaceful and uninterrupted possession in the concept of owner 28 for a period of ten (10) years, in case of ordinary prescription, 29 and thirty (30) years, in case of extraordinary prescription. 30

After reviewing the evidence presented before it, the trial court concluded that Elpidio Borillo had actual, peaceful and continuous possession of the subject parcels of land during his lifetime and until his death in 1970. The respondent Court reversed this finding and ruled that it was private respondent who had the possession since her purchase thereof in 1935. It is a matter of judicial policy to accord the trial court's findings of facts with the highest respect and not to disturb the same on appeal unless there are strong and impelling reasons to do so. 31 The reason for this is that trial courts have more opportunity and facilities to examine factual matters than appellate courts. 32 They are in a better position to assess the credibility of witnesses, not only by the nature of their testimonies, but also by their demeanor on the stand. 33 In Shauf vs. Court of Appeals, 34 We ruled: Elementary is the rule that the conclusions and findings of fact of the trial court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons. (Vda. de Alberto, et al. vs. CA, et al., 173 SCRA 436 [1989]) Absent any substantial proof, therefore, that the trial court's decision was grounded entirely on speculations, surmises or conjectures, the same must be accorded full consideration and respect. This should be so because the trial court is, after all, in a much better position to observe and correctly appreciate the respective parties' evidence as they were presented. (Matabuena vs. CA, et al., 173 SCRA 170 [1989]) We find no impelling, compelling or cogent reason to overturn the findings of fact of the trial court. WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals is hereby REVERSED and SET ASIDE and the judgment of the Regional Trial Court of Abra dated 3 June 1978 in Civil Case No. 1043 is hereby AFFIRMED and REINSTATED. SO ORDERED. Gutierrez, Jr., Feliciano, Bidin and Romero, JJ., concur. G.R. No. L-26112 June 30, 1967 REPUBLIC OF THE PHILIPPINES, MIGUEL TOLENTINO, SR., ZOILA DE CHAVEZ, DEOGRACIAS MERCADO, MARIANO PANTOJA, GUILLERMO MERCADO, AGAPITO REYES, ISIDRO BESAS, LEONA LACHICA, ELENO MACALINDONG, DIONISIO MACALINDONG, DOROTEO SARA, JOAQUIN CAUNCERAN, VIRGILIO AGUILAR, FELIX DUMAN, PIO BACULI, ANTERO APOLINAR, FLAVIANO CURZADO, ROSENDO IBAEZ, ARCADIO GONZALES, FELIX BORJA AND BLAS BASCO, petitioners, vs. HON. JAIME DE LOS ANGELES, Judge CFI of Batangas Branch III, Balayan, Batangas; AYALA Y CIA. and/or HACIENDA CALATAGAN and ALFONSO ZOBEL, respondents. CONCEPCION, C.J.: This is an incident arising from the refusal of the Court of First Instance of Batangas presided over by respondent, Honorable Jaime de los Angeles, Judge to order the execution of the decision of said Court in Civil Case No. 373 thereof, as modified by this Court in Case No. G.R. L-20950, entitled "Republic of the Philippines, Plaintiff-Appellant, versus Ayala Y Cia. and/or Hacienda Calatagan, et al., Defendants-Appellants. Miguel Tolentino, et al., Intervenors-Appellants." The basic facts are set forth in said decision, from which we quote: In an amended complaint dated May 12, 1960 filed in the Court of First Instance of Batangas (Civil Case No. 373) against Ayala y Cia., Alfonso Zobel, Antonino Dizon, Lucia Dizon, Ruben Dizon, Adelaida D. Reyes, Consolacion D. Degollacion, Artemio Dizon and Zenaida Dizon, the plaintiff Republic of the Philippines sought the annulment of titles allegedly obtained by the defendants over portions of the territorial waters of the public domain. It was alleged that the defendant company caused the survey and preparation of a composite plan of Hacienda Calatagan, increasing its area from 9,652,583 hectares (as evidenced by TCT No. 722) to 12,000 hectares, by taking or including therein lands of public dominion. Thus, plaintiff also prayed for recovery of possession of such areas in excess of those covered by TCT No. 722, and for which fishpond permits were already issued in favor of bona fide applicants; for damages in the sum of P500,000.00, and for a restraining order to enjoin defendants from exercising further acts of ownership. Miguel Tolentino and 22 others alleged holders of fishpond permits issued by the Bureau of Fisheries over the areas supposedly outside the boundaries of Hacienda Calatagan, were

allowed to intervene in the case and make demand for recovery of possession of said areas, and claim for damages for the deprivation of possession thereof allegedly by the illegal acts of defendants. Defendants, while admitting that there really, existed a difference between the area (of the Hacienda) as appearing in TCT No. 722 and the plan prepared by the commissioned private surveyor for the company, contend that the excess (of area) was insignificant in nature and attributable to the inaccuracy of the magnetic survey that was used in the preparation of the plan upon which TCT No. 20 (and later, TCT 722) was based. After trial, during which the parties presented documentary and testimonial evidence, the court rendered judgment annulling TCT No. T-9550 of the Register of Deeds of Batangas, issued to defendants Dizons covering Lots 360, 362, 363 and 182, as well as other subdivision titles issued to Ayala y Cia. and/or Hacienda de Calatagan over the areas outside its private property covered by TCT No. 722, and ordering defendants Dizons to vacate Lot. 360 in favor of intervenor Miguel Tolentino, and all the defendants to pay said intervenor, jointly and severally compensatory damages in the sum of P3,000.00 a year per hectare of Lot 360, until he is placed in possession thereof. Defendants were also restrained from exercising acts of ownership over said lots 360, 362, 363, and 182 of Psd 40891. This ruling was based upon the finding that the disputed areas form part of the navigable water, or are portions of the sea, beach and foreshores of the bay. However, as the intervenors, other than Miguel Tolentino, failed to establish with particularity the lots allegedly covered by their respective permits or to name the present possessors or occupants thereof, and as Ayala Y Cia. Alfonso Zobel, and the Dizons were the only ones impleaded as parties defendant the judgment was made effective exclusively against them. Thus, Lot No. 360, included in TCT No. T-9550 in the name of the Dizons, and proved by intervenor Miguel Tolentino to be the portion covered by the fishpond permit issued to him, was ordered by the court delivered to said intervenor. As a consequence of this decision, a writ of preliminary mandatory injunction, to place the plaintiff and intervenor in possession of the disputed properties, was issued by the court. However, by order of May 3, 1961, the same was set aside on the ground that in the issuance thereof, the defendants were not given their day in court. The motion for reconsideration of this order was denied on October 5, 1962, for the reason, among others, that as defendants have always been in possession of the areas in question, to order delivery of such possession to the other parties at this stage of the proceeding will result in injuries and promote confusion. Both parties appealed directly to this Court: the plaintiff and intervenors claiming that the court erred in not awarding damages to the plaintiff State; in holding that the areas claimed by the intervenors other than Miguel Tolentino were not duly identified; and in suspending the writ of preliminary mandatory injunction which had been executed and served by the Provincial Sheriff. Defendants, on the other hand, claim that the trial court was in error in finding that Lots 360, 362, 363, and 182 of Psd-40891 are outside the boundaries of Hacienda Calatagan, as delimited in TCT 722, and in ordering for their reversion to the public dominion; and in ordering the latter to deliver possession of Lot 360 to intervenor Miguel Tolentino; in ordering defendants to pay said intervenor compensatory damages, and in not declaring the defendants Dizons entitled to reimbursement of all necessary expenses made on the properties in question. After going over the evidence, this Court "found no reason to disturb the factual findings of the trial court," as well as its conclusion to the effect "that the areas in dispute were . . . portions of the foreshore, beach or navigable water itself;" that the same are "not . . . capable of registration;" that "their inclusion in a certificate of title does not convert the same into properties of private ownership or confer title on the registrant;" and that "as the lots covered by TCT No. T-9550, issued in the names of defendants Dizons (and which were purchased by the latter from defendants Ayala y Cia. and/or Alfonso Zobel) were . . . portions of the foreshores or of the territorial waters, the lower court committed no error in rendering judgment against said defendants and ordering the reversion of said properties to the public domain." We further ruled, however, that "there being no showing that defendants Dizons are not purchasers in good faith and for value, they have a right to retention of the property until . . . reimbursed of the necessary expenses made on the land" and that, accordingly, they "cannot also be held liable for damages allegedly suffered by other parties on account of their" (Dizon's) "possession of the property." The last two (2) paragraphs of the decision of this Court were: In view of the foregoing, the revocation of the writ of preliminary mandatory injunction previously issued by the lower court, and the suspension of the delivery of possession of the properties to plaintiff and intervenor Tolentino, were in order.1wph1.t WHEREFORE, thus modified, the decision of the lower court appealed from is hereby affirmed. No costs.

Soon after our decision had become final, the records of the case were returned to the Court of First Instance of Batangas, which, on motion of the Republic and the Intervenors, ordered, on December 27, 1966, the issuance of the corresponding writ of execution. The same was forthwith issued on the same date. On January 8, 1966, the defendants moved to quash said writ, and this motion was granted by the lower court on February 2, 1966. On February 8, 1966, it, likewise, issued an order denying a motion of the Republic and intervenor Tolentino for the issuance of another writ of execution of the dispositive portion of the decision in question, which is of the following tenor: (a) Declaring null and void Transfer Certificate of Title No. T-9550 (or Exhibit "24") of the Register of Deeds of Batangas, and other subdivision titles issued in favor of Ayala y Cia., and/or Hacienda Calatagan over the areas outside its private and covered by TCT No. 722, which, including the lots in T-9550 (Lots 360, 362, 363 and 182) are hereby reverted to public domain. A reconsideration of said orders of February 2 and 8, having been denied, on April 13, 1966, the Republic, Tolentino and the other intervenors in the principal case commenced, in the Supreme Court, the present action for certiorari and mandamus, to annul said orders of January 18, February 2 and 8, and April 13, 1966, upon the ground that the same had been issued with grave abuse of discretion and excess of jurisdiction, it being the ministerial duty of the lower court to order the execution of the final and executory decision on the merits of the main case, as amended. The basic facts are not disputed. Respondents seek to justify the orders complained of upon the ground that the dispositive part of our decision in Case G.R. No. L-20950 is rather vague and requires a clarification, because: . . . Since defendants Dizons were held not liable for the alleged damages, it follows that the joint and several character of the obligation imposed by this Honorable Court was extinguished, because the other defendants herein will no longer be able to claim from defendants Dizons the share which corresponds to the latter (2nd par., Art. 1217, Civil Code). This contention is absolutely devoid of merit. To begin with, Art. 1217 of our Civil Code, cited by respondents, refers to the effect of payment by one of the solidary debtors. No such payment having been made in the case at bar, said Article is clearly inapplicable thereto. The only provision which respondents might have had in mind (on the assumption that their reference to Art. 1217 was due merely to a misprint) is Art. 1215 of said code, reading: . . . Novation compensation, confusion or remission of the debt made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them.1wph1.t Neither is this Article in point. The aforementioned decision of this Court cannot be regarded as remitting a solidary obligation of the Dizons, because, as possessors in good faith, they were and are entitled by law to retain the property in question, until the indemnity due to them is paid. In other words, they were never under obligation to pay damages to Tolentino either jointly or solidarily, and, hence, there was no solidary obligation on their part that could have been remitted. The decision of the Court of First Instance holding all of the defendants herein jointly and solidarity liable for the payment of said damages, did not create a solidary obligation. It was no more than an attempt to declare the existence of said obligation, which attempt not the solidary obligation was frustrated by our decision establishing that such obligation did not and does not exist. In this connection, it should be noted that the dispositive part of the decision of the lower court, which was the object of the appeal in G.R. No. L-20950, provided: WHEREFORE, judgment is hereby rendered as follows: (a) Declaring as null and void Transfer Certificate of Title No. T-9550 (or Exhibit "24") of the Register of Deeds of the Province of Batangas and other subdivision titles issued in favor of Ayala y Cia. and/or Hacienda de Calatagan over the areas outside its private land covered by TCT No. 722, which, including the lots in T-9550 (lots 360, 362, 363 and 182) are hereby reverted to public dominion;

(b) Ordering defendants Antonino Dizon, Lucia Dizon, Adelaida Dizon Reyes, Consolacion Dizon Degollacion, Artemio Dizon, Ruben Dizon, Amorando Dizon, and Zenaida Dizon, to vacate lot 360 in favor of Intervenor Miguel Tolentino; (c) Ordering all the defendants to jointly and severally pay intervenor Miguel Tolentino compensatory damages in the sum of P3,000.00 a year per hectare of lot 360 from March 11, 1954, until he is placed in lawful possession of the said area; (d) Restraining and enjoining the defendants from further ownership and possession over lots 360, 362, 363 and 182 of Psd40891; and (e) Ordering the defendants to jointly and severally pay the costs. (CFI Decision, Civil Case No. 373, June 3, 1962; Defendants' Record on Appeal, pp. 259-260). This decision was affirmed by us, except as regards subdivision (c) thereof, which should be deemed modified so as to read, in effect, as follows: (c) Ordering all the defendants, except the Dizons, to jointly and severally pay intervenor Miguel Tolentino compensatory damages in the sum of P3,000.00 a year per hectare of lot 360 from March 11, 1954, until he is placed in lawful possession of the said area; and, except also, insofar as the Dizons have pursuant to the decision, as amended the right of retention therein stated. It may not be amiss to add that it is the ministerial duty of respondent Judge to order the issuance of the writ of execution of the aforementioned decision, as modified by this Court, even if said respondent entertained the doubts pointed out in the orders complained of. Petitioners seek to recover from respondents herein, as moral, actual and exemplary damages, the sum of P80,000, for having been deprived of the use and possession of the portions of the territorial waters above referred to, and P100,000, "for (respondents') having unduly prolonged this litigation" by resorting to technical devices "to prevent the enforcement of the final decision against them." These claims cannot be upheld: the first, for P80,000, because the damages resulting from said deprivation of use and possession have already been adjudicated in the decision in question; and the second, for P100,000, because the undue delay was mainly due to the action of the lower court. Besides, an action for certiorari and mandamus, before this Court, is not a proceeding suitable for the determination of the latter damages. Wherefore, said orders dated January 18, February 2 and 8, and April 13, 1966, should be, as they are hereby, annulled, and respondent Judge is directed to order the issuance of a writ of execution for the enforcement of the decision in question, with costs against respondent herein, except respondent Judge, Honorable Jaime de los Angeles. It is so ordered. Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur. Dizon, J., took no part. G.R. No. L-46892 September 30, 1981 HEIRS OF AMPARO DEL ROSARIO, plaintiffs-appellees, vs. AURORA O. SANTOS, JOVITA SANTOS GONZALES, ARNULFO O. SANTOS, ARCHIMEDES O. SANTOS, ERMELINA SANTOS RAVIDA, and ANDRES O. SANTOS, JR., defendants-appellants. GUERRERO, J.: The Court of Appeals, 1 in accordance with Section 31 of the Judiciary Act of 1948, as amended, certified to Us the appeal docketed as CA-G.R. No. 56674-R entitled "Amparo del Rosario, plaintiff-appellee, vs. Spouses Andres Santos and Aurora Santos, defendants-appellants," as only questions of law are involved. On January 14, 1974, Amparo del Rosario filed a complaint against the spouses Andres F. Santos and Aurora O. Santos, for specific performance and damages allegedly for failure of the latter to execute the Deed of Confirmation of Sale of an

undivided 20,000 square meters of land, part of Lot 1, Psu-206650, located at Barrio Sampaloc, Tanay, Rizal, in malicious breach of a Deed of Sale (Exhibit A or 1) dated September 28, 1964. Amparo del Rosario died on Sept. 21, 1980 so that she is now substituted by the heirs named in her will still undergoing probate proceedings. Andres F. Santos also died, on Sept. 5, 1980, and he is substituted by the following heirs: Jovita Santos Gonzales, Arnulfo O. Santos, Archimedes O. Santos, Germelina Santos Ravida, and Andres O. Santos, Jr. The Deed of Sale (Exh. A or 1) is herein reproduced below: DEED OF SALE KNOW ALL MEN BY THESE PRESENTS: I, ANDRES F. SANTOS, of legal age, married to Aurora 0. Santos, Filipino and resident cf San Dionisio, Paranaque, Rizal, Philippines, for and in consideration of the sum of TWO THOUSAND (P 2,000.00) PESOS, Philippine Currency, the receipt whereof is hereby acknowledged, do hereby SELLS, CONVEYS, and TRANSFERS (sic) unto Amparo del Rosario, of legal age, married to Fidel del Rosario but with legal separation, Filipino and resident of San Dionisio, Paranaque, Rizal, Philippines that certain 20,000 square meters to be segregated from Lot 1 of plan Psu-206650 along the southeastern portion of said lot, which property is more particularly described as follows: A parcel of land (Lot 1 as shown on plan Psu-206650, situated in the Barrio of Sampaloc, Municipality of Tanay, Province of Rizal. Bounded on the SW., along lines 1-2-3, by Lot 80 of Tanay Public Land Subdivision, Pls-39; on the NW., along lines 34-5, by Lot 2; and along lines 5-6-7-8-9-10-11, by Lot 6; on the NE., along lines 11-12-13, by Lot 3: and along lines 13-1415, by Lot 4, all of plan Psu-206650; and on the SE., along line 15-1, by Lot 5 of plan Psu- 206650 ... ; containing an area of ONE HUNDRED EIGHTY ONE THOUSAND FOUR HUNDRED TWENTY (181,420) SQUARE METERS. All points referred to are indicated on the plan and are marked on the ground as follows: ... of which above-described property, I own one-half (1/2) interest thereof being my attorney's fee, and the said 20,000 square meters will be transferred unto the VENDEE as soon as the title thereof has been released by the proper authority or authorities concerned: That the parties hereto hereby agree that the VENDOR shall execute a Deed of Confirmation of Deed of Sale in favor of the herein VENDEE as soon as the title has been released and the subdivision plan of said Lot 1 has been approved by the Land Registration Commissioner. IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of September, 1964, in the City of Manila, Philippines. s/ ANDRES F. SANTOS t/ ANDRES F. SANTOS With My Marital Consent: s/ Aurora O. Santos (Wife) t/ Aurora O. Santos (Wife) SIGNED IN THE PRESENCE OF: s/ Felicitas C. Moro s/ Corona C. Venal REPUBLIC OF THE PHILIPPINES) ) SS. BEFORE ME, a Notary Public for and in Rizal, Philippines, personally appeared Andres F. Santos, with Res. Cert. No. 4500027 issued at Paranaque, Rizal, on Jan. 9, 1964, B-0935184 issued at Paranaque, Rizal on April 15, 1964, and Aurora 0. Santos, with Res. Cert. No. A-4500028 issued at Paranaque, Rizal, on Jan. 9, 1964, giving her marital consent to this instrument, both of whom are known to me and to me known to be the same persons who executed the foregoing instruments and they acknowledged to me that the same is their free act and voluntary deed.

IN WITNESS WHEREOF, I have hereunto signed this instrument and affixed my notarial seal this lst day of October, 1964, in Pasig, Rizal, Philippines. Doc. No. 1792; Page No. 85; Book No. 19; Series of 1964. s/ FLORENCIO LANDRITO t/ FLORENCIO LANDRITO NOTARY PUBLIC Until December 31, 1965 2 Plaintiff claimed fulfillment of the conditions for the execution of the Deed of Confirmation of Sale, namely: the release of the title of the lot and the approval of the subdivision plan of said lot by the Land Registration Commission. She even enumerated the titles with their corresponding land areas derived by defendants from the aforesaid lot, to wit: (a) TCT 203580 30,205 sq. meters (b) TCT 203581 19, 790 sq. meters (c) TCT 167568 40,775 sq. meters In a motion to dismiss, defendants pleaded, inter alia, the defenses of lack of jurisdiction of the court a quo over the subject of the action and lack of cause of action allegedly because there was no allegation as to the date of the approval of the subdivision plan, no specific statement that the titles therein mentioned were curved out of Lot I and no clear showing when the demands were made on the defendants. They likewise set up the defense of prescription allegedly because the deed of sale was dated September 28, 1964 and supposedly ratified October 1, 1964 but the complaint was filed only on January 14, 1974, a lapse of more than nine years when it should have been filed within five years from 1964 in accordance with Article 1149, New Civil Code. Defendant also claimed that the demand set forth in the complaint has been waived, abandoned or otherwise extinguished. It is alleged that the deed of sale was "only an accommodation graciously extended, out of close friendship between the defendants and the plaintiff and her casual business partner in the buy and sell of real estate, one Erlinda Cortez;" 3 that in order to allay the fears of plaintiff over the non-collection of the debt of Erlinda Cortez to plaintiff in various sums exceeding P 2,000.00, defendants, who were in turn indebted to Erlinda Cortez in the amount of P 2,000.00, voluntarily offered to transfer to plaintiff their inexistent but expectant right over the lot in question, the same to be considered as part payment of Erlinda Cortez' indebtedness; that as Erlinda Cortez later on paid her creditor what was then due, the deed of sale had in effect been extinguished. Defendants thereby characterized the said deed of sale as a mere tentative agreement which was never intended nor meant to be ratified by and acknowledged before a notary public. In fact, they claimed that they never appeared before Notary Public Florencio Landrito. Finally, defendants alleged that the claim on which the action or suit is founded is unenforceable under the statute of frauds and that the cause or object of the contract did not exist at the time of the transaction. After an opposition and a reply were filed by the respective parties, the Court a quo resolved to deny the motion to dismiss of defendants. Defendants filed their answer with counterclaim interposing more or less the same defenses but expounding on them further. In addition, they claimed that the titles allegedly derived by them from Lot 1 of Annex A or I were cancelled and/or different from said Lot I and that the deed of sale was simulated and fictitious, plaintiff having paid no amount to defendants; and that the deed was entrusted to plaintiff's care and custody on the condition that the latter; (a) would secure the written consent of Erlinda Cortez to Annex A or I as part payment of what she owed to plaintiff; (b) would render to defendants true accounting of collections made from Erlinda showing in particular the consideration of 2,000.00 of Annex A or I duly credited to Erlinda's account. 4 Plaintiff filed a reply and answer to counterclaim and thereafter a motion for summary judgment and/or judgment on the pleadings on the ground that the defenses of defendants fail to tender an issue or the same do not present issues that are serious enough to deserve a trial on the merits, 5 submitting on a later date the affidavit of merits. Defendants filed their

corresponding opposition to the motion for summary judgment and/or judgment on the pleadings. Not content with the pleadings already submitted to the Court, plaintiff filed a reply while defendants filed a supplemental opposition. With all these pleadings filed by the parties in support of their respective positions, the Court a quo still held in abeyance plaintiff's motion for summary judgment or judgment on the pleadings pending the pre-trial of the case. At the pre-trial, defendants offered by way of compromise to pay plaintiff the sum of P2,000.00, the consideration stated in the deed of sale. But the latter rejected the bid and insisted on the delivery of the land to her. Thus, the pre-trial proceeded with the presentation by plaintiff of Exhibits A to Q which defendants practically admitted, adopted as their own and marked as Exhibits 1 to 17. In addition, the latter offered Exhibit 18, which was their reply to plaintiff's letter of demand dated December 21, 1973. From the various pleadings filed in this case by plaintiff, together with the annexes and affidavits as well as the exhibits offered in evidence at the pre-trial, the Court a quo found the following facts as having been duly established since defendant failed to meet them with countervailing evidence: In February, 1964, Teofilo Custodia owner of a parcel of unregistered land with an area of approximately 220,000 square meters in Barrio Sampaloc, Tanay, Rizal, hired Attorney Andres F. Santos "to cause the survey of the above-mentioned property, to file registration proceedings in court, to appear and represent him in all government office relative thereto, to advance all expenses for surveys, taxes to the government, court fees, registration fees ... up to the issuance of title in the name" of Custodia. They agreed that after the registration of the title in Custodio's name, and "after deducting all expenses from the total area of the property," Custodio would assign and deliver to Santos "one-half (1/2) share of the whole property as appearing in the certificate of title so issued." Exh. B or 2). On March 22, 1964, Custodio's land was surveyed under plan Psu-226650 (Exh. D or 4). It was divided into six (6) lots, one of which was a road lot. The total area of the property as surveyed was 211,083 square meters. The respective areas of the lots were as follows: x x x x x On December 27, 1965, a decree of registration No. N-108022 was issued in Land Registration Case No. N-5023, of the Court of First Instance of Rizal, LRC Record No. N-27513, in favor of Teofilo Custodia married to Miguela Perrando resident of Tanay, Rizal. On March 23, 1966, Original Certificate of Title No. 5134 (Exh. Q or 17) was issued to Custodio for Lots 1, 2, 3, 4 and 5, Psu- 206650, with a total area of 206,853 square meters. The areas of the five (5) lots were as follows: x x x x x In April to May, 1966, a consolidation-subdivision survey (LRC) Pcs-5273 (Exh. E or 5) was made on the above lots converting them into six (6) new lots as follows: xxx xxx xxx On June 22, 1966, the consolidation-subdivision plan (LRC) Pcs-5273 (Exh. E or 5) was approved by the Land Registration Commission and by the Court of First Instance of Rizal in an order dated July 2, 1966 (Entry No. 61037 T-167561, Exh. Q). Upon its registration, Custodio's O.C.T. No. 5134 (Exh. Q) was cancelled and TCT Nos. 167561, 167562, 167563, 167564 (Exh. G), 167565 (Exh. H and 167566 were issued for the six lots in the name of Custodio (Entry No. 61035, Exh. Q). On June 23, 1966, Custodio conveyed to Santos Lots 4 and 5, Pcs-5273 with a total area of 90,775 square meters (Exh. B or 2) described in Custodio's TCT No. 167564 (Exh. G or 7) and TCT No. 167565 (Exh. H or 8), plus a one-half interest in the Road Lot No. 6, as payment of Santos' attorney's fees and advances for the registration of Custodio's land. Upon registration of the deed of conveyance on July 5, 1966, Custodio's TCT Nos. 167564 and 167565 (Exhs. G and H) were cancelled. TCT No. 167568 (Exh. I or 9) for Lot 4 and TCT No. 167585 (Exh. J or 10) for Lot 5 were issued to Santos. On September 2, 1967, Santos' Lot 5, with an area of 50,000 square meters was subdivided into two (2) lots, designated as Lots 5-A and 5-B in the plan Psd-78008 (Exh. F or 6), with the following areas: x x x x x Upon registration of Psd-78008 on October 3, 1967, Santos' TCT No. 167585 (Exh. J) was cancelled and TCT No. 203578 for Lot 5- A and TCT No. 203579 for Lot 5-B were supposed to have been issued to Santos (See Entry 6311 in Exh. J or 10). Actually, TCT No. 203580 was issued for Lot 5-A (Exh. K or 1 1), and TCT No. 203581 for Lot 5-B (Exh. L or 12), both in the name of Andres F. Santos.

Out of Custodio's original Lot 1, Psu-206650, with an area of 181,420 square meters, Santos was given a total of 90,775 square meters, registered in his name as of October 3, 1967 under three (3) titles, namely: x x x x plus one-half of the road lot, Lot 6, PCS-5273, with an area of 5,303 square meters, which is registered jointly in the name of Santos and Custodio (Exh. B & E) 6 The court a quo thereupon concluded that there are no serious factual issues involved so the motion for summary judgment may be properly granted. Thereafter, it proceeded to dispose of the legal issues raised by defendants and rendered judgment in favor of plaintiff. The dispositive portion of the decision states as follows: WHEREFORE, defendants Andres F. Santos and Aurora Santos are ordered to execute and convey to plaintiff Amparo del Rosario, within ten (10) days from the finality of this decision, 20,000 square meters of land to be taken from the southeastern portion of either Lot 4, Pcs-5273, which has an area of 40,775 square meters, described in TCT No. 167568 (Exh. I or 9) of from their LOL 5-A. with an area of 30,205 square meters, described in TCI No. 203; O (Exh. K or 11). The expenses of segregating the 20,000 square meters portion shall be borne fqually by the parties. rhe expenses for the execution and registration of the sale shall be borne by the defendants (Art. 1487, Civil Code). Since the defendants compelled the plaintiff to litigate and they failed to heed plainliff's just demand, they are further ordered to pay the plaintiff the sum of P2,000.00 as attorney's fees and the costs of this action. SO ORDERED. 7 Aggrieved by the aforesaid decision, the defendant's filed all appeal to the Court of Appeals submitting for resolution seven assignments of errors, to wit: I. The lower court erred in depriving the appellants of their right to the procedural due process. II. The lower court erred in holding that the appellee's claim has not been extinguished. III. The lower court erred in sustaining appellee's contention that there are no other unwritten conditions between the appellants and the appellee except those express in Exh. "1" or "A", and that Erlinda Cortez' conformity is not required to validate the appellants' obligation. IV. The lower court erred in holding that Exh. "l" or "A" is not infirmed and expressed the true intent of the parties. V. The lower court erred in declaring that the appellants are co-owners of the lone registered owner Teofilo Custodia. VI. The lower court erred in ordering the appellants to execute and convey to the appellee 20,000 sq. m. of land to be taken from the southeastern portion of either their lot 4, Pcs-5273, which has an area of 40,775 sq.m., described in T.C.T. No. 167568 (Exh. 9 or 1), or from their lot No. 5-A, with an area of 30,205 sq.m. described in T.C.T. No. 203580 (Exh. 11 or K), the expenses of segregation to be borne equally by the appellants and the appellee and the expenses of execution and registration to be borne by the appellants. VII. Thelowercourterredinorderingtheappellantstopayto the appellee the sum of P2,000. 00 as attorney's fee and costs. 8 The first four revolve on the issue of the propriety of the rendition of summary judgment by the court a quo, which concededly is a question of law. The last three assail the summary judgment itself. Accordingly, the Court of Appeals, with whom the appeal was filed, certified the records of the case to this Court for final determination. For appellants herein, the rendition of summary judgment has deprived them of their right to procedural due process. They claim that a trial on the merits is indispensable in this case inasmuch as they have denied under oath all the material allegations in appellee's complaint which is based on a written instrument entitled "Deed of Sale", thereby putting in issue the due execution of said deed.

Appellants in their opposition to the motion for summary judgment and/or judgment on the pleadings, however, do not deny the genuineness of their signatures on the deed of sale. (Par. 3 of said Motion, p. 101, Record on Appeal). They do not contest the words and figures in said deed except in the acknowledgment portion thereof where certain words were allegedly cancelled and changed without their knowledge and consent and where, apparently, they appeared before Notary Public Florencio Landrito when, in fact, they claimed that they did not. In effect, there is an admission of the due execution and genuineness of the document because by the admission of the due execution of a document is meant that the party whose signature it bears admits that voluntarily he signed it or that it was signed by another for him and with his authority; and the admission of the genuineness of the document is meant that the party whose signature it bears admits that at the time it was signed it was in the words and figures exactly as set out in the pleading of the party relying upon it; and that any formal requisites required by law, such as swearing and acknowledgment or revenue stamps which it requires, are waived by him. 9 As correctly pointed out by the court a quo, the alleged false notarization of the deed of sale is of no consequence. For a sale of real property or of an interest therein to be enforceable under the Statute of Frauds, it is enough that it be in writing. 10 It need not be notarized. But the vendee may avail of the right under Article 1357 of the New Civil Code to compel the vendor to observe the form required by law in order that the instrument may be registered in the Registry of Deeds. 11 Hence, the due execution and genuineness of the deed of sale are not really in issue in this case. Accordingly, assigned error I is without merit. What appellants really intended to prove through the alleged false notarization of the deed of sale is the true import of the matter, which according to them, is a mere tentative agreement with appellee. As such, it was not intended to be notarized and was merely entrusted to appellee's care and custody in order that: first, the latter may secure the approval of one Erlinda Cortez to their (appellants') offer to pay a debt owing to her in the amount of P2,000.00 to appellee instead of paying directly to her as she was indebted to appellee in various amounts exceeding P2,000.00; and second once the approval is secured, appellee would render an accounting of collections made from Erlinda showing in particular the consideration of P2,000.00 of the deed of sale duly credited to Erlinda's account. According to appellants, they intended to prove at a full dress trial the material facts: (1) that the aforesaid conditions were not fulfilled; (2) that Erlinda Cortez paid her total indebtedness to appellee in the amount of P14,160.00, the P2,000.00 intended to be paid by appellant included; and (3) that said Erlinda decided to forego, renounce and refrain from collecting the P2,000.00 the appellants owed her as a countervance reciprocity of the countless favors she also owes them. Being conditions which alter and vary the terms of the deed of sale, such conditions cannot, however, be proved by parol evidence in view of the provision of Section 7, Rule 130 of the Rules of Court which states as follows: Sec. 7. Evidence of written agreements when the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and, therefore, there can be, between the parties and their successors in interest, no evidence of the terms of the agreement other than the contents of the writing, except in the following cases: (a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties, or the validity of the agreement is put in issue by the pleadings; (b) When there is an intrinsic ambiguity in the writing. The term "agreement" includes wills." The parol evidence rule forbids any addition to or contradiction of the terms of a written instrument by testimony purporting to show that, at or before the signing of the document, other or different terms were orally agreed upon by the parties. 12 While it is true, as appellants argue, that Article 1306 of the New Civil Code provides that "the contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided that they are not contrary to law, morals, good customs, public order, or public policy" and that consequently, appellants and appellee could freely enter into an agreement imposing as conditions thereof the following: that appellee secure the written conformity of Erlinda Cortez and that she render an accounting of all collections from her, said conditions may not be proved as they are not embodied in the deed of sale.

The only conditions imposed for the execution of the Deed of Confirmation of Sale by appellants in favor of appellee are the release of the title and the approval of the subdivision plan. Thus, appellants may not now introduce other conditions allegedly agreed upon by them because when they reduced their agreement to writing, it is presumed that "they have made the writing the only repository and memorial of truth, and whatever is not found in the writing must be understood to have been waived and abandoned." 13 Neither can appellants invoke any of the exceptions to the parol evidence rule, more particularly, the alleged failure of the writing to express the true intent and agreement of the parties. Such an exception obtains where the written contract is so ambiguous or obscure in terms that the contractual intention of the parties cannot be understood from a mere reading of the instrument. In such a case, extrinsic evidence of the subject matter of the contract, of the relations of the parties to each other, and of the facts and circumstances surrounding them when they entered into the. contract may be received to enable the court to make a proper interpretation of the instrumental. 14 In the case at bar, the Deed of Sale (Exh. A or 1) is clear, without any ambiguity, mistake or imperfection, much less obscurity or doubt in the terms thereof. We, therefore, hold and rule that assigned errors III and IV are untenable. According to the court a quo, "(s)ince Santos, in his Opposition to the Motion for Summary Judgment failed to meet the plaintiff's evidence with countervailing evidence, a circumstance indicating that there are no serious factual issues involved, the motion for summary judgment may properly be granted." We affirm and sustain the action of the trial court. Indeed, where a motion for summary judgment and/or judgment on the pleadings has been filed, as in this case, supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as may be admissible in evidence, and shall show affirmatively that the affiant is competent to testify as to the matters stated therein. Sworn or certified copies of all papers or parts thereof referred to in the affidavitshalibeattachedtheretoorservedtherewith. 15 Examining the pleadings, affidavits and exhibits in the records, We find that appellants have not submitted any categorical proof that Erlinda Cortez had paid the P2,000.00 to appellee, hence, appellants failed to substantiate the claim that the cause of action of appellee has been extinguished. And while it is true that appellants submitted a receipt for P14,160.00 signed by appellee, appellants, however, have stated in their answer with counterclaim that the P2,000.00 value of the property covered by the Deed of Sale, instead of being credited to Erlinda Cortez, was conspicuously excluded from the accounting or receipt signed by appellee totalling P14,160.00. The aforesaid receipt is no proof that Erlinda Cortez subsequently paid her P2,000.00 debt to appellee. As correctly observed by the court a quo, it is improbable that Cortez would still pay her debt to appellee since Santos had already paid it. Appellants' claim that their P2,000.00 debt to Erlinda Cortez had been waived or abandoned is not also supported by any affidavit, document or writing submitted to the court. As to their allegation that the appellee's claim is barred by prescription, the ruling of the trial court that only seven years and six months of the ten-year prescription period provided under Arts. 1144 and 155 in cases of actions for specific performance of the written contract of sale had elapsed and that the action had not yet prescribed, is in accordance with law and, therefore, We affirm the same. The action of the court a quo in rendering a summary judgment has been taken in faithful compliance and conformity with Rule 34, Section 3, Rules of Court, which provides that "the judgment sought shall be rendered forthwith if the pleadings, depositions, and admissions on file together with the affidavits, show that, except as to the amount of damages, there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. " Resolving assignments of errors, V, VI, and VII which directly assail the summary judgment, not the propriety of the rendition thereof which We have already resolved to be proper and correct, it is Our considered opinion that the judgment of the court a quo is but a logical consequence of the failure of appellants to present any bona fide defense to appellee's claim. Said judgment is simply the application of the law to the undisputed facts of the case, one of which is the finding of the court a quo, to which We agree, that appellants are owners of one-half (1/2) interest of Lot I and, therefore, the fifth assignment of error of appellants is without merit. By the terms of the Deed of Sale itself, which We find genuine and not infirmed, appellants declared themselves to be owners of one-half (1/2) interest thereof. But in order to avoid appellee's claim, they now contend that Plan Psu-206650 where said

Lot I appears is in the exclusive name of Teofilo Custodio as the sole and exclusive owner thereof and that the deed of assignment of one-half (1/2) interest thereof executed by said Teofilo Custodio in their favor is strictly personal between them. Notwithstanding the lack of any title to the said lot by appellants at the time of the execution of the deed of sale in favor of appellee, the said sale may be valid as there can be a sale of an expected thing, in accordance with Art. 1461, New Civil Code, which states: Art. 1461. Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a vain hope or expectancy is void. In the case at bar, the expectant right came into existence or materialized for the appellants actually derived titles from Lot I . We further reject the contention of the appellants that the lower court erred in ordering the appellants to execute and convey to the appellee 20,000 sq.m. of land to be taken from the southeastern portion of either their Lot 4, Pcs-5273, which has an area of 40,775 sq.m., described in T.C.T. No. 167568 (Exh. 9 or 1), or from their Lot No. 5-A, with an area of 30,205 sq.m. described in T.C.T. No. 203580 (Exh. 11 or K), the expenses of segregation to be borne equally by the appellants and the appellee and the expenses of execution and registration to be borne by the appellants. Their argument that the southeastern portion of Lot 4 or Lot 5-A is no longer the southeastern portion of the bigger Lot 1, the latter portion belonging to the lone registered owner, Teofilo Custodia is not impressed with merit. The subdivision of Lot I between the appellants and Teofilo Custodio was made between themselves alone, without the intervention, knowledge and consent of the appellee, and therefore, not binding upon the latter. Appellants may not violate nor escape their obligation under the Deed of Sale they have agreed and signed with the appellee b3 simply subdividing Lot 1, bisecting the same and segregating portions to change their sides in relation to the original Lot 1. Finally, considering the trial court's finding that the appellants compelled the appellee to litigate and they failed to heed appellee's just demand, the order of the court awarding the sum of P2,000.00 as attorney's fees is just and lawful, and We affirm the same. WHEREFORE, IN VIEW OF THE FOREGOING, the judgment appealed from is hereby AFFIRMED in toto, with costs against the appellants. SO ORDERED. Makasiar, (Actg. Chairman), Fernandez, De Castro and Melencio-Herrera, JJ., concur. G.R. No. L-25931 October 30, 1978 ROBERTO LABASAN, AVELINO LABASAN, JOSEFINA LABASAN, and MARCELA COLOMA, petitioners, vs. ADELA LACUESTA, DOMINGA LACUESTA and NORBERTO LACUESTA, respondents. MUOZ PALMA, J.: Is the contract entered into between spouses Clemente and Hermenigilda Lacuesta on one hand and spouses Gelacio and Marcela Labasan on the other a pacto de retro sale or an equitable mortgage? This is the lone question involved in this litigation. Sometime in 1927, spouses Lacuesta were the owners of an unregistered, irrigated riceland located in the municipality of Badoc, province of Ilocos Norte, and declared for taxation purposes under Tax Declaration No. 026181 in the name of Hermenigilda Lacuesta. 1 On April 20, 1927, the spouses executed in favor of spouses Labasan a document written in the Ilocano dialect the English translation of which marked as Exhibit "1-A" follows: We, the spouses, Clemente Lacuesta and Hermenigilda Lacuesta, both of legal age, are residents of barrio Salapasap No. 16, Badoc, Ilocos Norte. We declare the truth that in view of our urgent necessity for money, we thought of selling one parcel of land owned by us situated in Sitio Mabusay No. 18 within the jurisdiction of said municipality, to the spouses Gelacio

Labasan and Marcela Coloma, residents of barrio Puzo of the municipality of Pinili, Ilocos Norte, for the amount of TWO HUNDRED TWENTY-FIVE (P225.00) pesos, Philippine Currency, which we have already received in lump sum. The sale of this parcel of land owned by us to the said spouses can be reconveyed provided ten years shall not have elapsed and we have the same amount of the money which we had taken from them, as agreed upon by us . This parcel of land has a circumference of 240 square meters, yielding two 'uyones' and three baares of palay. Bounded on the north by Fernando Lacuesta and Vicente Coloma; on the east by Matias Coloma, on the south by Valeriana Lacuesta and on the west by Fernando Lacuesta. We further agreed that during the period of their ownership of this parcel of land, I will be responsible for all tenancy matters over this land. For this reason this receipt is made as security to the spouses for all matters pertaining thereto. But in case there shall arise adverse claims with respect to the ownership of the vendees over this parcel of land I and my wife shall answer the same as well as defray all expenses of litigation an if we shall be adjudged otherwise, and, if the vendees of this parcel of land shall be deprived of their ownership, we shall give another parcel of land with the same yield and area so that our sacred agreement shall not be beclouded with bad faith. In witness to the truth of what we have done, we sign our names for those who know how to write and affix the cross for those who do not know how to write, together with the signatures of the witnesses. Done this 20th of April, 1927. (pp. 8-10, Petitioner's brief) On April 23, 1948 spouses Lacuesta filed with the Court of First Instance of Ilocos Norte a complaint against spouses Labasan, seeking the reconveyance of the parcel of land subject of the above-quoted document. During the pendency of the case, the Lacuesta died and were substituted by their children, all surnamed Lacuesta. In the meantime, defendant Gleacio Labasan also died and was substituted by his children. In the complaint, it was alleged that spouses Lacuesta secured a loan P225.00 from Gelacio Labasan and as security for the payment of that loan, they offered their riceland; sometime in 1943, they tendered payment of the loan but Labasan refused to accept it; after "liberation" they offered again to pay their loan and demanded the return of their land but they were once more refused because defendants claimed that they were the owners of the property. 1-A In the answer to the complaint only one special defense was raised that the Lacuesta conveyed by means of a written document the land with right to repurchase the same within the period of ten years, but because of plaintiff's failure to exercise that right within the stipulated period, the vendees a retro have became the absolute owners of the land and the latter in fact donated the property to their son Roberto Labasan who is now the owner of the property. 2 On the basis of the evidence adduced by the parties the trial court presided then by Judge Wenceslao M. Ortega rendered on May 11, 1959 a decision declaring that the document executed by the Lecuestas was a pacto de retro sale and that the latter lost their right to redeem the land for not having taken any step within the agreed of ten years. 3 The plaintiffs elevated the case to the Court of Appeals on the sole issue of the nature of the document marked Exhibit "1-A". The Court of Appeals, in its decision of February 18, 1966, set aside the judgment of the trial court and declared the contract an equitable mortgage and ordered the defendants Labasan to reconvey the land to the Lacuestas without the latter paying the loan of P225.00 inasmuch as the same was deemed paid from the fruits of the property which the Labasans had been receiving for the past thirty-two years. 4 We affirm the decision of the appellate court under well-settled principles embodied in the law and existing jurisprudence.

1. It is a basic fundamental rule in the interpretation of a contract that if the terms thereof are clear and leave no doubt upon the intention of the contracting parties the literal meaning of the stipulation shall control, 5 but when the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. 6 Examining Exhibit "1-A" in this case, it is evident that the terms of the document are not clear and explicit on the real intent of the parties when they executed the aforesaid document. For instance, the words or clauses, vis: "urgent necessity for money," "selling the land," ownership," I will be responsible for all tenancy matters," "This receipt is made as security," are sufficient to create a doubt as to what the document truly purports to be. Under those terms is the contract one of loan with security or a pacto de retro sale? 2. In view of the ambiguity caused by conflicting terminologies in the document, it becomes necessary to inquire into the reason behind the transaction and other circumstances accompanying it so as to determine the true intent of the parties. Once the intent becomes clear then it shall be made to prevail over what on its face the document appears to be. Each case is to be resolved on the basis of the circumstances attending the transaction. Article 1371, New Civil Code: In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. (same as Art. 1282, Old Civil Code) In the case at bar, the collective weight of the following considerations lead Us to agree with the findings and conclusion of the appellate court that Exhibit "1-A" is a mere loan with security and not a pacto de retro sale. First, the reason behind the execution of Exhibit "1-A" was that the Lacuestas were in "urgent necessity for money" and had to secure a loan of P225.00 from Gelacio Labasan for which the riceland was given as "security". In Jayme, et al. v. Salvador, et al., 1930, this Court upheld a judgment of the Court of First Instance of Iloilo which found the transaction between the parties to be a loan instead of a sale of real property notwithstanding the terminology used in the document, after taking into account the surrounding circumstances of the transaction. The Court through Justice Norberto Romualdez stated that while it was true that plaintiffs were aware of the contents of the contracts, the preponderance of the evidence showed however that they signed knowing that said contracts did not express their real intention, and if they did so notwithstanding this, it was due to the urgent necessity of obtaining funds. 7 "Necessitous men are not, truly speaking, free men; but to answer a present emergency, will submit to any terms that the crafty may impose upon them." 8 Second, the amount of P225.00, even in 1927, was too inadequate for a purchase price of an irrigated riceland with an alleged "perimeter" of 240 meters and an "area of 1,269 square meters" yielding annually one "uyon" and five "baares" of palay, 9 the land being valued at the time for no less than P1,000.00. 9-A In Quinga v. Court of Appeals, et al., 1961, although the contract between the parties upon its face was one of sale, nevertheless, this Court upheld the findings of the Court of Appeals that the transaction was not a sale but a loan secured by an equitable mortgage under the prevailing circumstances of the case, such as, that the price of the land was grossly inadequate and the vendor remained in possession of the land and enjoyed the fruits. 10 In fact, Article 1602 paragraph 1 of the New Civil Code expressly provides that in case of doubt a contract purporting to be a sale with a right to repurchase shall be construed as an equitable mortgage when the price or consideration of the sale is unusually inadequate. Third, although symbolically the possession of the property was transferred to Gelacio Labasan, it was Lacuesta, the supposed vendor, who continued to be in physical possession of the property, took charge of its cultivation, and all tenancy matters. The second paragraph of Article 1602 of the New Civil Code provides that when the vendor remains in possession as lessee or otherwise, the contract shall be construed as an equitable mortgage. Fourth, Gelacio Labasan, the supposed vendee a retro never declared the property in his name for taxation purposes nor did he pay the taxes thereon since the execution of the document in 1927. Roberto Labasan, now one of the petitioners and who claims to have acquired the property from his father Gelacio by way of donation, declared the property in his name under Tax Declaration No. 55683-C-1 only sometime in 1944. (p. 13, Respondents' brief; see also CFI decision, p. 18, Record on Appeal) In Santos v. Duata, this Court, in affirming a decision of the Court of Appeals, considered the facts that the vendor remained in possession of the land and continued paying the taxes thereon significant circumstances which justified a

judgment holding the transaction between the parties as an equitable mortgage and not a pacto de retro sale, thereby applying Article 1602 of the New Civil Code which the Court held to be a remedial measure which may be applied retroactively to cases arising prior to the effectivity of the New Civil Code. 11 Fifth, as noted in the decision of the appellate court, the supposed vendees a retro, now the herein petitioners, failed to take any step since 1927 to consolidate their alleged ownership over the land. Under Article 1509 of the Old or Spanish Civil Code, if the vendor failed to redeem within the period agreed upon, the vendee's title became irrevocable by the mere registration of an affidavit of consolidation. Thus, under the old law, a judicial order was not necessary as is required now under Article 1607 of the New Civil Code. The failure of Gelacio Labasan or his heirs to carry out that act of consolidation strongly corroborates the claim of Lacuesta that there was no intent at all on the part of the parties to transfer ownership of the riceland in question. 3. Finally, We have the rule that in case of any doubt concerning the surrounding circumstances in the execution of a contract, the least transmission of rights and interests shall prevail if the contract is gratuitous, and, if onerous the doubt is to be settled in favor of the greatest reciprocity of interest. 12 Thus, in the early case of Olino v. Medina 1909, Olino filed a complaint against Medina to recover a parcel of riceland which he alleged to have mortgaged for P175.00 and which Medina refused to return on the ground that the latter allegedly bought the property. In deciding the conflict of allegations between the parties, this Court, through Justice Florentino Torres, considered the transaction over the property as a loan, reasoning that "such a contract involves a smaller transmission of rights and interests, and the debtor does not surrender all rights to his property but simply confers upon the creditor the right to collect what is owing from the value of the thing given as security, there existing between the parties a greater reciprocity of rights and obligations. 13 With the foregoing considerations, there is no further necessity for Us to dwell on the other reasons given by the Court of Appeals in rendering judgment in favor of private respondents, which reasons We believe are not decisive of the issue posed in this case. PREMISES CONSIDERED, We find no reversible error in the petition under review and We affirm the same. With costs against petitioners. So ordered. Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur. G.R. No. L-30770. April 7, 1993. THE CAPITAL INSURANCE & SURETY CO., INC. plaintiff-appellee, vs.CENTRAL AZUCARERA DEL DANAO, defendant-appellant. CENTRAL AZUCARERA DEL DANAO, Third-Party, plaintiff-appellant, vs. TALISAY-SILAY MILLING CO., INC., ET AL. Third-Party, defendant-appellee. SYLLABUS 1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT DOES NOT EXTEND TO THOSE NOT PARTIES THEREOF. This Court is not the least persuaded with appellant Central Azucarera del Danao's contention that pursuant to the March 3, 1960 Agreement, all its corporate liabilities incurred prior thereto shall be borne and paid for by Talisay-Silay Milling Co., Inc., and/or Mr. J. Amado Araneta, to the exclusion of appellant. As against Capital Insurance and Surety Co., Inc., Central Azucarera del Danao cannot invoke by way of defense the March 3, 1960 Agreement to evade liability. The binding effect of the March 3, 1960 Agreement does not extend to those not parties to the contract, Capital Insurance & Surety Co., Inc. in this instance. (Article 1311, Civil Code of the Philippines) It, cannot, therefore, be prejudiced by the terms of the March 3, 1960 Agreement. Insofar as the insurance company is concerned, Central Azucarera del Danao is and shall remain to be its debtor until payment is made. 2. ID.; ID.; NO ROOM FOR INTERPRETATION WHERE TERMS OF CONTRACT ARE CLEAR AND UNAMBIGUOUS; JUDICIAL DETERMINATION REQUIRED WHERE WORDS APPEAR CONTRARY TO INTENTION OF PARTIES. The facts of the case before us show every indication of the contracting parties' conflicting interpretation of paragraphs 9 & 10.

Judicial determination of the parties' intention is thus, inevitable. To ascertain the same, the contemporaneous and subsequent acts of the parties shall be considered. 3. ID.; ID.; ID.; ID.; CASE AT BAR. It should be recalled that at the time PNB acquired Central Azucarera del Danao from Talisay-Silay Milling Co., Inc. the identities of its creditors were not yet disclosed because at the time the settlement was reached, the books of Central Azucarera del Danao, then in the possession of Talisay-Silay Milling, Co., Inc. and/or Mr. J. Amado Araneta as President of petitioner, had not yet been turned over to PNB. Apprehensive and wary of a sudden emergence of unknown creditors after its actual takeover of Central Azucarera del Danao, PNB's representatives insisted on the insertion of paragraphs 9 and 10 in the proposed Agreement of March 3, 1960 to protect the bank from the assumption of all unsettled obligations of Central Azucarera del Danao, especially fraudulent claims. It is thus illogical to hold liable, without a right to indemnification, as the lower court did, Central Azucarera del Danao, just because the unsettled obligation of P57,323.71 worth of premiums was recorded in its books. Thus, to adopt the interpretation of the lower court would frustrate the will or intent of the parties. It was too literal an approach for the lower court to consider the word "nor" as the "key to the intention of the parties" and therefrom provide direction for interpretation of paragraph 10. The phraseology of paragraph 10 cannot be made to control when already, its true meaning may be gleaned from the unrebutted testimonies of PNB representatives. DECISION ROMERO, J p: This appeal by Central Azucarera del Danao, certified to us by the Court of Appeals in the resolution of June 27, 1969, 1 calls for the interpretation of an agreement between appellant Central Azucarera del Danao, the Philippine National Bank [PNB], Talisay-Silay Milling Co., Inc. and J. Amado Araneta. Entered into on March 3, 1960, subject Compromise Agreement provides for the termination of the pending suits and countersuits between PNB as bank creditor on the one hand and Central Azucarera del Danao, debtor, on the other hand. 2 The Agreement involves a transfer and conveyance of stock ownership, with the PNB exchanging its shares of stocks in Bacolod Murcia Milling Co. Inc. and in Ma-ao Sugar Central Co. for the controlling shares of Talisay-Silay Milling Co. Inc. in Central Azucarera del Danao, consisting of not less than 93% of the latter's paid-up capital stock 3 to forestall the intended foreclosure by PNB of Central Azucarera del Danao. 4 However, in acquiring the majority holdings in Central Azucarera del Danao, PNB, at the instance of its chairman and president, sought to protect itself from assuming payment of money claims rumored to have been fraudulently incurred, the use thereof having been diverted without benefit to Central Azucarera del Danao. Consequently, in drawing up subject Agreement, PNB insisted on the inclusion of paragraphs 9 and 10, to wit: "9) That all obligations of Central Azucarera del Danao incurred before the date of this agreement but not those incurred by the Bank during the period when the Central Azucarera of Danao was under the management of the BANK in favor of trade creditors for supplies, equipment, fuel and spare parts, outstanding in the books of Danao shall be listed and itemized and only such items as are approved and acknowledged by the BANK shall be considered as legitimately incurred and due for payment by Danao; This provision, however, shall not apply to Central Azucarera del Danao's account with the Philippine National Bank and the Development Bank of the Philippines (formerly R. F. C.) full responsibility for which shall remain with Central Azucarera del Danao; 10) That any or all obligations purporting to be of Central Azucarera del Danao but not appearing in the books thereof nor acknowledged as in paragraph 9 above shall be borne and paid for by Talisay-Silay Central and/or Mr. J. Amado Araneta." After the Agreement had taken force and effect, a complaint for collection of sum of money was filed by Capital Insurance and Surety Co., Inc. against Central Azucarera del Danao. It alleged that on various dates during the period from 1954 to 1961, defendant Central Azucarera del Danao secured from Capital Insurance different fire and marine cargo insurance policies and surety bonds with total premiums amounting to P57,323.71 5 and that said amount had remained unsatisfied, defendant Central Azucarera del Danao having failed to pay plaintiff Capital Insurance, despite its repeated demands thereon.

In its Answer, defendant Central Azucarera del Danao disclaimed any liability for the unpaid P57,323.71 worth of premiums, invoking the provisions of the above-quoted paragraphs 9 & 10 of subject Agreement. It theorized that pursuant to said paragraphs 9 & 10, all the corporate liabilities of Central Azucarera del Danao incurred before the PNB acquired the 93% shares of stock of Talisay-Silay Milling Co., Inc. in accordance with the aforementioned settlement shall be borne and paid for by the Talisay-Silay Milling Co., Inc. and/or Mr. J. Amado Araneta. Defendant explained that in this instance, since the fire and marine cargo insurance policies and surety bonds were acquired prior to the stock ownership swap deal between PNB and Talisay-Silay Milling Co., Inc., satisfaction of the unpaid premium shall be borne by Talisay-Silay Milling Co., Inc. and/or Mr. J. Amado Araneta to the exclusion of defendant Central Azucarera del Danao. Having thus shifted the burden of paying the P57,323.71 worth of premiums on Talisay-Silay Milling Co., Inc. and/or Mr. J. Amado Araneta, who were both not impleaded in the main case for collection of a sum of money, defendant Central Azucarera del Danao, with leave of court, filed a third-party complaint praying that third-party defendants Talisay-Silay Milling Co., Inc. and/or Mr. J. Amado Araneta be ordered to indemnify third-party plaintiff for whatever the latter may be held accountable for in case the trial court rules in favor of plaintiff Capital Insurance Co., Inc. Third party defendants Talisay-Silay Milling Co., Inc. and Mr. J. Amado Araneta, by way of special defense in their "Answer to Third-Party Complaint," stated that the provisions of paragraphs 9 & 10 of subject agreement are not applicable in the present case. They contended that the obligation to pay P57,323.71 premiums was not one of the obligations contemplated under paragraph 9, for which third-party defendants had by agreement bound themselves to pay. According to the third-party defendants, paragraph 9, involved only those obligations incurred by Central Azucarera del Danao in favor of trade creditors for supplies, equipment, fuel and spare parts. Obviously, argued third-party defendants, payment of premiums did not fall under this enumeration. Thus, Central Azucarera del Danao was solely liable for the payment of the P57,323.71 premiums. Furthermore, third-party defendants opined that neither could they be compelled under the provisions of paragraph 10 to assume payment of the P57,323.71 premiums. The requisite conditions in paragraph 10 required that only obligations not appearing in the books of Central Azucarera del Danao nor those acknowledged, as in paragraph 9 would be paid by third party defendants. These conditions, claimed third party defendants, had not been met or fulfilled under the circumstances of the case. It was their theory that these two conditions provided in paragraph 10 must concur before they could be held liable for payment of said amount. But considering that the obligation in question actually appeared in the books of Central Azucarera del Danao, thus leaving unsatisfied the first of the two conditions, third-party defendants concluded that they were not accountable for the unpaid premiums. On August 22, 1963, plaintiff Capital Insurance and defendant Central Azucarera del Danao agreed to a "Stipulation of Facts" where the latter admitted having secured subject insurance policies without having paid the premiums thereof, now sought to be collected by plaintiff Capital Insurance. Trial of the case on the merits then commenced, until its final disposition by way of a decision dated March 30, 1964, holding as follows: "WHEREFORE, judgment is hereby rendered, ordering the defendant Central Azucarera del Danao to pay to plaintiff the amount of P53,360.54 with legal interest from the filing of plaintiff's complaint on June 18, 1962 until paid; plus the additional amount of P3,000.00 by way of damage as and for reasonable attorney's fees for plaintiff's counsel; and to pay the costs of this suit. The third-party complaint of third-party plaintiff Central Azucarera del Danao against third parties defendant Talisay-Silay Milling Co. Inc., and J. Amado Araneta, is hereby dismissed, with costs against the third-party plaintiff." The trial court found untenable Central Azucarera del Danao's contention that pursuant to the Agreement of March 3, 1960, Talisay-Silay Milling Co., Inc., and/or Mr. J. Amado Araneta had, by substitution, become the new debtors of plaintiff Capital Insurance & Surety Co., Inc. In this jurisdiction, explained the lower court, an obligation extinguished by novation thru substitution of debtor necessitates consent of the creditor. Absent the creditor's consent, as in the case of plaintiff Capital Insurance & Surety Co., Inc., the original debtor, defendant Central Azucarera del Danao was still liable to fulfill its obligation.

With respect to the third-party complaint, lower court dismissed the same thereby disallowing third party plaintiff Central Azucarera del Danao from recovering indemnity from third party defendants, Talisay-Silay Milling Co., Inc. and/or Mr. J. Amado Araneta on the basis of the Agreement of March 3, 1960, particularly under paragraphs 9 and 10 thereof. According to the court below, paragraph 9 is restrictive in scope, as it refers only to those obligations prior to the Agreement of March 3, 1960 and incurred from trade creditors for supplies, equipment, fuel and spare parts. The exclusive enumeration of these items precluded payment of premiums as one such obligation under paragraph 9. On the other hand, the trial court explained that under paragraph 10, Talisay-Silay Milling Co., Inc. and/or Mr. Amado Araneta shall assume the obligations of Central Azucarera del Danao but only with respect to those obligations not appearing in the books thereof nor acknowledged as in paragraph 9. Elucidating further, the trial court said that the parties' use of the term "nor" defined in the Webster dictionary as a conjunction which means "and not", "likewise not" reveals the intention of holding liable Talisay-Silay Milling Co. Inc. and/or Mr. J. Amado Araneta, upon the concurrence of the above-mentioned conditions. This must be so, said the trial court, since paragraph 10 may otherwise be read as follows: "10) That any or all obligations purporting to be of Central Azucarera del Danao but not appearing in the books thereof AND NOT /nor/acknowledged as in paragraph 9 above shall be borne and paid for by Talisay-Silay Central and/or J. Amado Araneta." On the basis of the foregoing, the trial court ruled that since it is clear that the obligation in favor of Capital Insurance and Surety Co., Inc. was admittedly recorded in the books of Central Azucarera del Danao, contrary to the first condition precedent under paragraph 10, third party defendants Talisay-Silay Milling Co., Inc. and/or Mr. J. Amado Araneta could not be adjudged responsible for payment of subject premiums. Having failed to prevail over third-party defendants, Central Azucarera del Danao elevated the case before the Court of Appeals which certified the same to this Court, the issue involved herein being a pure question of law. For our determination then are the following issues: (a) whether or not Central Azucarera del Danao, is directly liable to pay Capital Insurance and Surety Co., Inc., the amount sued for; (b) if so, whether or not it can recover indemnity from TalisaySilay Milling Co. Inc. and/or Mr. J. Amado Araneta on the basis of paragraphs 9 and 10 of the March 3, 1960 Agreement. We resolve both issues in the affirmative. This Court is not the least persuaded with appellant Central Azucarera del Danao's contention that pursuant to the March 3, 1960 Agreement, all its corporate liabilities incurred prior thereto shall be borne and paid for by Talisay-Silay Milling Co., Inc., and/or Mr. J. Amado Araneta, to the exclusion of appellant. As against Capital Insurance and Surety Co., Inc., Central Azucarera del Danao cannot invoke by way of defense the March 3, 1960 Agreement to evade liability. The binding effect of the March 3, 1960 Agreement does not extend to those not parties to the contract, Capital Insurance & Surety Co., Inc. in this instance. 6 Thus, Article 1311, Civil Code of the Philippines provides, inter alia: "ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent." xxx xxx xxx Capital Insurance & Surety Co., Inc., cannot, therefore, be prejudiced by the terms of the March 3, 1960 Agreement. Insofar as the insurance company is concerned, Central Azucarera del Danao is and shall remain to be its debtor until payment is made. This ruling, however, should not be construed as a bar to Central Azucarera del Danao's right to be indemnified by TalisaySilay Milling Co. Inc. and/or Mr. J. Amado Araneta, under paragraphs 9 & 10 of the March 3, 1960 Agreement aforequoted. According to Central Azucarera del Danao, common to both disputed paragraphs is the condition precedent requiring approval by PNB of the accounts and obligations incurred by it before PNB's management thereof, prior to making itself liable. Consequently, contrary to the lower court's opinion mere entry in its books is not enough to bind Central Azucarera del Danao, for had it been so intended, PNB would not have insisted on including in paragraph 10, the phrase "such as in

paragraph 9", which qualifies the kind of acknowledgment or acceptance required before any unpaid account could be borne by Central Azucarera del Danao. We find Central Azucarera del Danao's interpretation correct and convincing. In so holding, this Court finds support in Article 1370 of the Civil Code, the provisions of which are explicit on the correct interpretation of a contract, to wit: "ART. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. (1281)" The facts of the case before us show every indication of the contracting parties' conflicting interpretation of paragraphs 9 & 10. Judicial determination of the parties' intention is thus, inevitable. To ascertain the same, the contemporaneous and subsequent acts of the parties shall be considered. 7 It should be recalled that at the time PNB acquired Central Azucarera del Danao from Talisay-Silay Milling Co., Inc. the identities of its creditors were not yet disclosed because at the time the settlement was reached, the books of Central Azucarera del Danao, then in the possession of Talisay-Silay Milling, Co., Inc. and/or Mr. J. Amado Araneta as President of petitioner, had not yet been turned over to PNB. Apprehensive and wary of a sudden emergence of unknown creditors after its actual takeover of Central Azucarera del Danao, PNB's representatives insisted on the insertion of paragraphs 9 and 10 in the proposed Agreement of March 3, 1960 to protect the bank from the assumption of all unsettled obligations of Central Azucarera del Danao, especially fraudulent claims. It is thus illogical to hold liable, without a right to indemnification, as the lower court did, Central Azucarera del Danao, just because the unsettled obligation of P57,323.71 worth of premiums was recorded in its books. For if this were the case, there would have been no need for PNB's insistence on the inclusion of paragraphs 9 and 10 in the March 3, 1960 Agreement. Without these paragraphs, the possibility of opening the floodgates to all kinds of creditors, legitimate or not, as long as Central Azucarera del Danao's books reflect certain debts owing to them, may well come to pass. Thus, to adopt the interpretation of the lower court would frustrate the will or intent of the parties. It was too literal an approach for the lower court to consider the word "nor" as the "key to the intention of the parties" and therefrom provide direction for interpretation of paragraph 10. The phraseology of paragraph 10 cannot be made to control when already, its true meaning may be gleaned from the unrebutted testimonies of PNB representatives. WHEREFORE, the judgment appealed from is hereby AFFIRMED subject to the modification that Central Azucarera del Danao, defendant in Civil Case No. 50688 is thus ordered to PAY Capital Insurance and Surety Co., Inc., the sum of P57,323.71 which is the value of unpaid premiums and documentary stamps, with legal interest computed from the time of filing of the complaint on June 18, 1962 up to the actual payment thereof, plus the additional amount of P5,000.00 representing attorney's fees; and to pay the costs of this suit. On the other hand, Talisay-Silay Milling Co., Inc., and Mr. J. Amado Araneta, third-party defendants to the third-party complaint below are solidarily liable to INDEMNIFY Central Azucarera del Danao, in the amount of P57,323.71 with legal interest from the time of the filing of the third-party complaint up to the actual payment thereof. SO ORDERED. Bidin, Davide, Jr. and Melo, JJ ., concur. [G.R. No. 156447. April 26, 2005] JUAN AGAS and RUSTICA AGAS, petitioners, vs. CARIDAD SABICO, respondent. CALLEJO, SR., J.: This is a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, as amended, of the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 25980, as well as its resolution denying the motion for reconsideration thereof. The CA affirmed in toto the Decision[2] of the Regional Trial Court (RTC) of Quezon City, Branch 85, in Civil Case No. Q-49506.[3]

Respondent Caridad Sabico and the spouses Ulpiano and Concordia Paulo (spouses Paulo) filed an application to acquire a parcel of land, Lot 24, Block 151, Psd-68807, before the now defunct Peoples Homesite and Housing Corporation (PHHC). The subject lot had an area of 400 square meters, located at East Avenue Subdivision, Quezon City, covered by Transfer Certificate of Title (TCT) No. 66994. The respondent had her house constructed on the property. She was widowed and worked as a laundrywoman of the petitioners, Juan Agas, a lawyer, and his wife Rustica Agas. The respondent considered Rusticas mother, Irene dela Pea, as her second mother. Petitioner Juan Agas was also one of the wedding sponsors of Thelma Sabico, one of the respondents daughters, and the latter even borrowed P141.00 from petitioner Juan Agas on October 1, 1963.[4] The PHHC granted the application of the respondent and that of the spouses Paulo, and awarded the lot to them. However, they were required to make a downpayment of P420.00 for the lot upon the execution of a conditional contract to sell, and the balance thereof payable in installments. Since the respondent had no means to pay the required downpayment for the property, she went to the house of the petitioners at Gastambide, Sampaloc, Manila, to borrow the money. The respondent was with her daughter, Maria Luz. Petitioner Juan Agas agreed to lend P250.00 to Sabico, but required her to sign an unnotarized Agreement/Kasunduan in which she obliged herself to sell to the lawyer the undivided one-half portion of the subject property for P2,500.00, payable on such terms and conditions as they may agree upon, but not less than P50.00 a month. The following principal terms and conditions were, likewise, stated in the agreement: (a) petitioner Juan Agas would remit to the respondent the total amount of P250.00 upon the execution of the deed; (b) the respondent would return the amount she received from the petitioner to the PHHC, and in case she refused to consummate the agreement, she would be liable for the interest and liquidated damages; and (c) the respondent would continue to reside in the property for a period of ten years. The agreement also contained the following stipulation: 9. That once ownership becomes absolute in the first party to said lot, which shall be done at the earliest opportunity, said first party will, within the thirty-day from issuance of ownership papers to her, execute an absolute CONTRACT OF SALE IN FAVOR OF SECOND PARTY OR HIS LEGAL REPRESENTATIVES PAYMENTS WHATSOEVER EXCEPT EXPENSES FOR the issuance of the corresponding torrens title and its registration in the name of first party.[5] The respondent had not finished first grade, could write only her name and did not know how to read nor understand the English language. Nevertheless, she signed the agreement.[6] On May 14, 1964, the PHHC executed a Conditional Contract to Sell[7] in favor of the respondent and the spouses Paulo over Lot 24, Block 151, Psd-68807 for the price of P4,200.00. The transferees bound and obliged themselves, jointly and severally, to make a downpayment of P420.00 upon the execution of the contract, the balance of the purchase price payable within a period of 10 years, in 120 equal monthly installments of P41.97 at an annual interest of 6%. They also agreed not to sell, assign, encumber, mortgage, lease or sublease, the property without the written consent of the PHHC. The respondent had been borrowing money from Agas from time to time, and her indebtedness had totalled to P5,000.00.[8] In August 1964, a Contract to Sell was executed by and between the respondent and the petitioners which was duly notarized by Notary Public Efren Barangan.[9] The contract, however, was merely a reiteration of the agreement previously entered, with a modification that the respondent bound herself to mortgage her undivided share of the property to the petitioners later as security of the payment of the amount remitted by Agas to the PHHC, as well as damages and interest: g) That to secure or guarantee the payment of principal, interest and damages as mentioned in the two preceding paragraphs (e and f) VENDOR binds herself to MORTGAGE THE LOT described above or any reasonable real or personal property owned or may be owned by VENDOR at the selection or discretion of PURCHASER in favor of PURCHASER or her legal representatives without additional obligation of PURCHASER in the proper execution or accomplishment of required documents.[10] After full payment of the purchase price of the property by Sabico and the spouses Paulo, the PHHC executed a Deed of Sale[11] dated August 5, 1975 over the property in their favor. On November 14, 1975, TCT No. 215624[12] was issued in the names of the respondent and the spouses Paulo as pro indiviso owners thereof.[13] At the dorsal portion of the title was

an annotation prohibiting the registered owners from selling, leasing or encumbering the property within one year from the issuance of the said title. Almost a month after the issuance of TCT No. 215624, the respondent delivered her owners duplicate copy of the said title to petitioner Juan Agas. Notwithstanding this, the property was still declared for taxation purposes in the names of the respondent and the spouses Paulo from 1978 until 1986.[14] Meanwhile, on October 3, 1978, the respondent executed an Absolute Deed of Sale of Real Property[15] in favor of petitioner Juan Agas over the south portion of the property, her one-half undivided share, with a total area of 200 square meters for the price of P20,000.00. The contract of sale was notarized by Atty. Evelyn Respicio. However, the deed was not filed with the Office of the Register of Deeds. On June 12, 1979, petitioner Juan Agas notified the respondent of his desire to construct a two-unit residential apartment on the property and required the latter to pay a nominal monthly rental of P25.00 in exchange for her continued stay in the subject premises.[16] The petitioner claimed that a portion of the rental fee was to be applied to the payment of realty taxes since the tax declarations were still in the names of the respondent and the spouses Paulo. Thereafter, in a Letter[17] dated January 8, 1980, petitioner Juan Agas informed the respondent of the construction of the apartment building, with a request that she move her house (barong-barong) to the eastern rear portion of the property. The area of the lot given to the respondent was four meters in width and eight meters in length. She was told that she could use the said lot for the next 15 years subject to renewal upon mutual agreement. The petitioner asked the respondent to affix her signature on the said letter, but the latter refused to do so.[18] The respondent likewise refused to move her house as requested by the petitioner. The petitioner then executed an Affidavit of Adverse Claim over the property and had it annotated at the dorsal portion of TCT No. 215624.[19] The construction of a two-door apartment building on the property proceeded in 1981, and another four-unit apartment structure was built on the lot in 1985. In the meantime, the respondent continued paying the realty taxes on the property. On October 9, 1986, the Deed of Absolute Sale executed by her on October 3, 1978 was filed with the Office of the Register of Deeds. TCT No. 215624 was cancelled, and TCT No. 350542[20] was thereafter issued in the names of the spouses Paulo and the petitioners as coowners. On December 4, 1986, the respondent instituted an action against the petitioners for Declaration of Nullity of Deeds and Title with Damages before the RTC of Quezon City, Branch 85. In her complaint, the respondent alleged that she was the true and lawful owner of the undivided one-half portion of the disputed property, and that practically all the installment payments for it were procured by way of loan from the petitioners. She also declared that she was the petitioners laundrywoman and that she had known and trusted the petitioners for many years; however, by means of deceit, insidious machinations, cajolery and other fraudulent devices, they were able to inveigle her into signing several documents, which ostensibly caused the transfer of ownership of her share over the subject real property in their favor. She also alleged that the petitioners took advantage of her credulity and illiteracy, and employed undue moral pressure and influence on her. In their answer with counterclaim,[21] the petitioners maintained that the respondent knowingly and voluntarily sold the questioned property for adequate and valuable consideration, and that they did not engage in fraud or undue influence. Moreover, the respondent was not as gullible as her counsel pictured her to be. In fact, the terms of the deed of sale had been fully explained to her by the notary public before she affixed her signature thereto. Moreover, the loans that the respondent secured from them actually constituted part of the consideration for the sale of the subject property. They also averred that they had been in open, peaceful, and uninterrupted possession of the subject property in the concept of owners, and that the respondents continued occupation of a small portion of the disputed property was merely by virtue of their compassion, accommodation, and tolerance. After trial on the merits, judgment was rendered in favor of the respondent. The dispositive portion of the decision reads: WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Declaring the document denominated as Agreement (Kasunduan) dated January 17, 1964 (Exh. H); Contract to Sell (Exh. I) and the Deed of Absolute Sale dated October 3, 1978 (Exh. 5) void ab initio and of no legal force and effect; 2. Ordering the Register of Deeds of Quezon City to cancel TCT No. 350542 and issue a new Transfer Certificate of Title over the same property in the name of Caridad Sabico, widow, and Ulpiano Paulo, married to Concordia Paulo; 3. Ordering the plaintiff to pay defendants the sum of P5,000.00 with interest thereon at 12% per annum, computed from January 16, 1964 until fully paid; and 4. Ordering the defendants to pay plaintiff the sum of P10,000.00 as attorneys fees, plus costs. SO ORDERED.[22]

respondent is estopped from assailing the sale, considering that she kept silent when they had their building constructed on the property. Additionally, the respondent told the notary public that she had executed the deed of absolute sale voluntarily and knew its contents. The petitioners also assert that, contrary to the ruling of the trial court and the CA, the deed of absolute sale is precisely what it is, a sale and not an equitable mortgage. The amounts received by the respondent from them were partial payments for the property and not mere loans. They posit that the respondent admitted that they never demanded for the repayment of the amounts. Moreover, the realty tax payments were made by the respondent pursuant to their agreement that such taxes would be taken from the respondents monthly rentals. They insist that their compassion and close personal relationship with the respondent was the reason why the latter continued to be in possession of the property. The petition has no merit. It is settled that the clarity of contract terms and the name given to it do not bar the Court from ascertaining the true interest of the parties. In Aguirre v. Court of Appeals,[29] the Court declared: In determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement. As such, therefore, documentary and parol evidence may be submitted and admitted to prove such intention.[30] In Reyes v. Court of Appeals,[31] this Court emphasized that: In determining whether a deed absolute in form is a mortgage, the court is not limited to the writing memorials of the transaction. The decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by all the surrounding circumstances, such as the relative situation of the parties at that time, the attitude, acts, conduct, declarations of the parties, the negotiations between them leading to the deed, and generally, all pertinent facts having a tendency to fix and determine the real nature of their design and understanding. As such, documentary and parol evidence may be submitted and admitted to prove the intention of the parties. It must be stressed, however, that there is no conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage. In fact, it is often a question difficult to resolve and is frequently made to depend on the surrounding circumstances of each case. When in doubt, courts are generally inclined to construe a transaction purporting to be a sale as an equitable mortgage, which involves a lesser transmission of rights and interests over the property in controversy.[32] Thus, if both parties offer a conflicting interpretation of a contract or several contracts, then judicial determination of the intention of the parties intention is inevitable.[33] A contract may be embodied in two or more separate writings, in which event the writings should be read and interpreted together in such a way as to eliminate seeming inconsistencies and render the parties intention effectual.[34] In construing a written contract, the reason behind and the circumstances surrounding its execution are of paramount importance to place the interpreter in the situation occupied by the parties concerned at the time the writing was executed.[35] Construction of the terms of a contract, which would amount to impairment or loss of right, is not favored. Conservation and preservation, not waiver, abandonment or forfeiture of a right, is the rule.[36] In case of doubts in contracts, the same should be settled in favor of the greatest reciprocity of interests.[37] Moreover, such doubts must be resolved against the person who drafted the deed and who is responsible for the ambiguities in the deed.[38] In the present case, the respondent signed the following deeds in favor of the petitioner: (1) the Agreement/Kasunduan, which on its face is dated January 17, 1964; (2) the Contract to Sell dated August 1964; and (3) the Deed of Absolute Sale dated October 3, 1978 over the respondents undivided one-half share over the property. In declaring that the transaction between the petitioners and the respondent on the subject property was an equitable mortgage, the CA applied Articles 1602 and 1604 of the New Civil Code, which read:

The trial court ruled that the deed of absolute sale[23] executed by the respondent in favor of the petitioners did not reflect on its face the intention of the parties, and as such, there was no sale of the subject property. Moreover, the execution of the agreement, the conditional contract to sell and deed of absolute sale was patently illegal and void, because the lot in question could not possibly have been alienated by the respondent as it was still owned by the PHHC at the time of their execution. Her right over the subject lot, according to the trial court, could not be assigned nor transmitted inasmuch as it would violate the terms and conditions contained in the conditional contract to sell, and is furthermore contrary to public policy. The trial court opined that there was no showing that the respondent was fully appraised of the contents of the agreement and the contract to sell at the time of their execution. The trial court, likewise, sustained the testimony of the respondent that she had a very low educational attainment, unable to read, and that her understanding was that the transaction entered into by her was merely one of loan in the total amount of P5,000.00. Lastly, the trial court held that her delivery of the title to the petitioners only created an equitable mortgage thereon and was not a result of the sale of the subject land. The petitioners appealed the decision to the CA. On September 13, 1999, the CA rendered judgment affirming in toto the appealed decision. The CA ruled that the transaction between the respondent and the petitioners was only an equitable mortgage of the property as shown by the following: first, the respondent remained in possession of the property even after the execution of the deed of absolute sale on October 3, 1978; second, she continued to pay the taxes on the property sold up to the second quarter of 1986 as evidenced by the official receipts;[24] and third, the respondent obtained a series of loans from the petitioners. On January 15, 2003, the petitioners filed with this Court the instant petition for review. They raise the following issues: I. WHETHER OR NOT THE RESTRICTION PROHIBITING THE VENDOR (RESPONDENT) FROM SELLING, ENCUMBERING, MORTGAGING OR LEASING THE QUESTIONED PROPERTY NO LONGER EXISTED. II. IF THE RESTRICTION NO LONGER EXISTED, AS IN FACT IT NO LONGER EXISTED, WHETHER OR NOT THE SALE OF THE SUBJECT PROPERTY TO THE PETITIONERS WAS VALID, SINCE THE TRANSACTION WAS ALLEGEDLY AN EQUITABLE MORTGAGE AND NOT A SALE.[25] The threshold issue in this case is whether the transaction between the petitioners and the respondent over the undivided one-half portion of the subject property is an equitable mortgage or a sale thereof. The issue raised by the petitioners pervade into the factual findings of the RTC and the appellate court.[26] It bears stressing that a review by certiorari under Rule 45 of the Revised Rules of Court is a matter of discretion.[27] The jurisdiction of the Supreme Court is limited to reviewing only errors of law, not of fact. When supported by substantial evidence, findings of fact of the trial court as affirmed by the CA are conclusive and binding on the parties, and are not reviewable by this Court unless the presence of any exceptional circumstances is established.[28] The petitioners failed to establish any of the exceptional circumstances which would warrant such review. The petitioners aver that the CA erred in declaring the deed of absolute sale null and void on the ground that the PHHC did not consent thereto. They insist that the one-year period prohibiting the sale of the property was to be reckoned from November 14, 1975, when TCT No. 350542 was issued in their names. The bare fact that the respondent was unable to read and did not know the English language will not even render the deed of absolute sale voidable because the respondent did not complain that the deeds executed by her in their favor were written in English. Moreover, the petitioners assert that the

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: 1. 2. When the price of a sale with right to repurchase is unusually inadequate; When the vendor remains in possession as lessee or otherwise;

3. When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; 4. 5. When the purchaser retains for himself a part of the purchase price; When the vendor binds himself to pay the taxes on the thing sold;

Second. The respondent was in dire need of money to pay her share of the downpayment for the property, including the monthly amortizations to the PHHC. She then had to borrow money from the petitioners, until she was indebted to the latter in the amount of P5,000.00. In the process, the respondent executed the Agreement/Kasunduan, Contract to Sell and Deed of Absolute Sale, all drafted by the petitioners. The nature, consequences and legal effects of the deeds were not explained to the respondent. As testified to by Notary Public Evelyn Respicio, she merely asked the respondent if the latter knew the contents of the deed of absolute sale, and the respondent purportedly replied in the affirmative. The notary public never even bothered to explain to the respondent the nature and the rights and obligations of the parties under the deed, as mandated by Article 1332 of the New Civil Code which reads: When one of the parties is unable to read, and if the contract is in a language not understood by him and mistake and fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. Necessitous men are not, truly speaking, free men; but to answer a present emergency, will submit to any terms that the crafty may impose upon them.[40] Third. Despite the execution of the said deeds, the respondent remained in possession of the property and continued residing in her house which was constructed thereon. If the agreement between the parties had been one of sale as claimed by the petitioners, it behooved the latter to have immediately taken possession of the subject lot as soon as the respondent had executed the deed of absolute sale on October 3, 1978. The petitioners, however, did no such thing. This circumstance is a badge of the fictitiousness of the deed of absolute sale. Instead, on June 12, 1979, the petitioners asked the respondent to pay a nominal monthly rental of P25.00 to which the respondent did not agree. Even if the respondent had agreed to do so, case law has it that where the vendor remains in physical possession of the land as lessee or otherwise, the contract should be treated as an equitable mortgage.[41] Fourth. On November 14, 1975, TCT No. 215624 was issued by the Office of the Register of Deeds to the respondent and the spouses Paulo. As the registered owner, notwithstanding the delivery of her owners duplicate of title to the petitioner s sometime in December 1975, the respondent paid the realty taxes over the property and continued to do so even after she had executed a deed of absolute sale over her undivided share in the property in favor of the petitioners on October 3, 1978, until 1986. Fifth. The petitioners did not immediately file the deed of absolute sale with the Office of the Register of Deeds, executed by the respondent in their favor on October 3, 1978 or immediately thereafter. They did so only on October 9, 1986, or after the lapse of eight years, and were then able to secure title over the property in their names. During all this time, the respondent remained in possession of the property. Sixth. The respondent filed a complaint against the petitioners in the RTC soon after the petitioners registered the deed of absolute sale covering the property in their favor and secured a title over the property as the registered owners thereof. The petitioners claim that the total amount of P5,000.00 they remitted to the respondent was partial payment for the sale of the property. This is, however, belied by the Agreement executed by the respondent where she transferred her rights over the property in their favor for P2,500.00, and where the petitioners bound and obliged themselves to pay, at the rate of P50.00 a month at the very least, inclusive of the P141.00 secured on October 1, 1963 and the supposed downpayment of P250.00. The petitioners did not explain why they remitted only P5,000.00 to the respondent, when the consideration for the transfer of the respondents rights under the agreement was only P2,500.00. Moreover, the petitioners did not explain why they bought the property for P20,000.00 as was made to appear in the deed of absolute sale when, under the agreement and the contract to sell which the respondent executed in their favor, the consideration only appears to be P2,500.00. We believe that the petitioners did not remit to the respondent the P20,000.00, the purchase price of the property indicated in the deed of absolute sale, for the simple reason that the respondent did not and never intended to sell her property to the petitioners. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners. SO ORDERED.

6. In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or, otherwise, shall be considered as interest which shall be subject to the usury laws. Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. The appellate court relied on the following indicia in concluding that the agreement, contract to sell and deed of absolute sale executed by the respondent in favor of the petitioners was an equitable mortgage: There are at least three indicia of an equitable mortgage in the transaction. First, vendor Caridad Sabico remained in possession of the property even after the deed of sale (Exhs. 5 and 5-A) was executed on October 3, 1978. When Atty. Juan Agas started the construction of the two-door apartment in 1981, Caridad Sabico and her children were still residing on the land. Atty. Agas allowed them to stay on the front part of the land after his carpenters dismantled their house. Second, Caridad Sabico continued to pay the taxes on the property sold even after the execution of the deed of sa le up to the second quarter of 1986. This is evidenced by official receipts marked as B, B -1 up to B-25. Upon the other hand, Tax Declaration No. 13-084-01647 in the name of Ulpiano Paulo and Juan L. Agas (Exh. 17) was released to the declared property owners on October 3, 1986 and the real estate tax on the second quarter of 1986 was paid only on June 30, 1986, as reflected on the back page of the said tax declaration. As held in Lazatin v. Court of Appeals: As is well-known, it is only where payment of taxes is accompanied by actual possession of the land covered by the tax declaration that such circumstance may be material in supporting a claim of ownership. Third, the existence of an equitable mortgage is shown by the fact that appellee obtained a series of loans from appellant. The records show that the transaction of the plaintiff-appellee and appellant is not one that transpired in a day or week. The so-called purchase price which were paid on installment was actually a series of l oans used by appellee in defraying her amortization to PHHC. These circumstances, taken together, clearly manifest that the real intention of the parties in the series of transaction is to secure the payment of a debt.[39] We agree with the appellate court. In addition to the appellate courts findings, the following facts and circumstances further fortify the said ruling: First. The respondent was the laundrywoman of the petitioners. Petitioner Juan Agas was even the godfather of the respondents daughter Thelma Sabico when the latter got married.

Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur. G.R. No. 168108 April 13, 2007 ENRIQUE C. ABAD, JOSEPH C. ABAD, MA. SABINA C. ABAD, ADELAIDA C. ABAD, CECILIA C. ABAD, VICTORIA C. ABAD, VICTOR C. ABAD, CENON C. ABAD, JR., AND JUANITA C. ABAD, Petitioners, vs. GOLDLOOP PROPERTIES, INC., Respondent. CALLEJO, SR., J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 77559. The ruling of the appellate court affirmed in toto the decision of the Regional Trial Court (RTC), Pasig City, Branch 167, in Civil Case No. 67192. Petitioners Enrique C. Abad, Joseph C. Abad, Ma. Sabina C. Abad, Adelaida C. Abad, Cecilia C. Abad, Victoria C. Abad, Victor C. Abad, Cenon C. Abad, Jr., and Juanita C. Abad were the owners of 13 parcels of titled agricultural land2 covering a total of 53,562 square meters. The lots were situated in the S.C. Malabon Estate in Tanza, Cavite. On August 29, 1997, respondent Goldloop Properties Inc., through its President, Emmanuel R. Zapanta, entered into a Deed of Conditional Sale3 with petitioners at the price of P650.00 per square meter, or a total of P34,815,300.00 for the entire land area. The parties agreed on the following terms of payment: a. EARNEST MONEY An earnest money of ONE MILLION PESOS (Php1,000,000.00) [EARNEST MONEY] has been given by the BUYER to the SELLER on June 30, 1997, as evidenced by MBTC Check No. 2930037 dated July 02, 1997, receipt of which is hereby acknowledged. b. FIRST PAYMENT SIX MILLION SEVEN HUNDRED SIXTY-FIVE THOUSAND SIX HUNDRED SIXTY PESOS (PHP6,765,660.00) [FIRST PAYMENT] shall be paid by the BUYER to the SELLER on August 17, 1997 covered by MBTC Check No. 2930037198, upon signing of this DEED OF CONDITIONAL SALE. c. FULL PAYMENT The remaining balance, representing full and final payment of the total contract price, in the amount of TWENTY-SEVEN MILLION FORTY-NINE THOUSAND SIX HUNDRED FORTY PESOS (PHP27,049,640.00) shall be paid by the BUYER to the SELLER on or before 31 December 1997 and upon the fulfillment of the following conditions: c.1 The balance of the total contract price shall be paid by the BUYER to the SELLER after verification of the total land area through a site relocation survey, to be confirmed by the BUYER and the SELLERS. c.2 The remaining balance of the total contract price shall be adjusted, based on the total land area verified through a site relocation survey, as per confirmation made by both parties.4 Paragraph 8 of the Deed also provided for the consequence of respondents failure to fulfill its obligation to pay the balance of the total consideration agreed upon: 8. In the event that the BUYER cannot comply, to fulfill his obligation to this contract, for the balance of the total consideration, one week before December 31, 1997, the BUYER shall forward a formal request for an extension of the contract not to exceed 30 days (on or before January 28, 1998). This grant of extension is afforded to the BUYER on a one-time basis and no subsequent extensions will be granted. In the event that the BUYER fails to comply [with] his part of the obligation within the specified extension period, the earnest money of ONE MILLION PESOS (PHP1,000,000.00), given by the BUYER to the

SELLER by way of MBTC Check No. 2930037 dated July 02, 1997, shall be forfeited in favor of the SELLER but the first payment check of SIX MILLION SEVEN HUNDRED SIXTY-FIVE THOUSAND SIX HUNDRED SIXTY PESOS (PHP6,765,660.00) shall be returned to the BUYER without any additional charges to the SELLER.5 In a letter6 dated August 28, 1998, Zapanta informed Henry Abad that he would not object to the planned sale of the properties to other parties, provided that 50% of the forfeitable amount of P1,000,000.00 would be returned in addition to the P6,765,660.00 as provided in paragraph 8 of the Deed of Conditional Sale. He also declared that the intended date of purchase had been adversely affected by economic conditions which were never foreseen as a possible contingency. However, in another letter7 dated October 8, 1998, Zapanta informed Enrique C. Abad that the negotiations with the banks had failed due to "the continuing economic downturn" and consequently, the transaction would not be consummated. He then requested that the first payment be returned within five days, in accordance with paragraph 8 of the deed.8 Respondent reiterated its demand to petitioners in a Letter9 dated November 5, 1998. Respondent then filed a Complaint10 for Collection with Prayer for Writ of Attachment against petitioners. The complaint contained the following prayer: 1. Upon filing hereof, to issue ex-parte, a temporary restraining order directing the defendants to jointly and severally stop from executing any deed or instrument intended to encumber or convey the ownership of the properties enumerated under par. 1 hereof, to other parties; and after notice and hearing, to issue an injunction containing the same tenor as that of the temporary restraining order; 2. Upon filing hereof, to issue ex-parte, a writ of attachment on such properties of defendants sufficient to secure the satisfaction whatever favorable judgment that plaintiff may obtain in this case; 3. After notice and hearing, to render judgment, ordering the defendants, to jointly and severally pay plaintiff the following sums: (a) P6,765,660.00 representing the principal amount due to plaintiff plus interest of 24% per annum, the computation of which to commence from the date of filing of the instant case until the said amount is fully paid; (b) Attorneys fees equivalent to twenty-five (25%) of the principal amount sought to be collected; (c) P50,000.00 representing the premium of the attachment and/or injunction bond; (d) P50,000.00 litigation expenses; (e) Cost of suit. Plaintiff, further prays for such other reliefs and remedies consistent with law, justice and equity.11 Trial ensued, and the parties presented their respective evidence. On June 10, 2002, the RTC ruled in favor of respondent. In his Decision,12 Presiding Judge Alfredo C. Flores limited the issue to "whether or not [petitioners are] entitled to the refund or return of Php6,765,660.00 paid to [respondent] pursuant to the Deed of Conditional Sale." According to the trial court, the purpose of the P1,000,000.00 earnest money was separate and distinct from the P6,765,660.00 first payment: A careful and thorough study of [paragraph 8 of the Deed of Conditional Sale] undeniably reveals that whether the contract was extended or not, the first payment in the amount of Php6,765,660.00 shall be returned to the plaintiff. The statement "but the first payment check of six million seven hundred sixty five thousand six hundred sixty pesos shall be returned to the buyer" indubitably presupposes that the parties, although using the words "earnest money" had truly considered the same as an option on the part of the plaintiff to rescind the contract in lieu of the forfeiture of Php1,000,000.00 if, for whatever reasons, it chooses not to pursue the contract by not paying the remaining balance thereon either one week before 31 December 1997

if not extended or, until 28 January 1998 if extended. Put otherwise, the requirement of forwarding a formal request for extension of the contract was provided for no other purpose than solely for the plaintiff to save the amount of Php1,000,000.00 from being forfeited in the event it chooses to instead exercise its option of paying the balance on or before the said stipulated periods. In short, the purpose of paying the amount of Php6,765,660.00 is distinct and separate from that of Php1,000,000.00.13 Citing Article 1370 of the Civil Code, the RTC also declared that "in the event the contract of conditional sale falters," the return of the first payment of P6,765,660.00 would be an unconditional obligation on the part of petitioners. Moreover, the provisions of the contract should be enforced as they are read, and should not be given an unusual significance even if to do so would appear to be in the interest of justice or necessary to prevent hardship. The dispositive portion reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants ordering the latter, in solidum, to pay the former the following sums, namely: 1. Php6,765,660.00 in addition to the payment of the 6% interest per annum from the filing of the complaint until it is fully paid; 2. 10% of the principal obligation, for and as reasonable attorneys fees; and 3. Costs of suit. For lack of sufficient factual basis, the counterclaim is dismissed. SO ORDERED. 14 Petitioners filed a motion for reconsideration, alleging that the trial court erroneously interpreted paragraph 8 of the contract. Petitioners insisted that a close reading of the provision revealed that respondent as buyer had to comply with three conditions precedent before the first payment could be returned to it: (a) One week before December 31, 1997, the BUYER shall forward a formal request for an extension of the contract." x x x (b) The extension shall not exceed 30 days (on or before 28 January 1998) x x x. (c) The extension shall be on a "one-time basis and no further extension will be granted."15 Petitioners alleged that these conditions were not fulfilled, and that respondent did not request for an extension within the stipulated period. They further alleged that "whether or not plaintiff makes that extension notice is the uncertain event or contingency upon which plaintiffs validity of its claim or return of first payment depends," without which no right of acti on accrues. Thus, since respondent, as buyer, failed to comply with the "condition precedents" in paragraph 8, its claim for refund did not ripen into a demandable right. Contrary to the trial courts ruling, no such right to rescind the contract had been granted to respondent. For its part, respondent filed a Motion for Grant of Writ of Attachment, relying on Section 1(d) and (e), Rule 57 of the Revised Rules of Court. On September 16, 2002, the RTC issued an Omnibus Order denying both motions. It held that when the sale did not materialize, the obligation of petitioners to return the first payment became unqualified and unconditional. In accordance with the contract, only the earnest money would be forfeited in favor of petitioners in case respondent failed to remit the balance of the purchase price. On petitioners application of a writ of attachment, the trial court held that respondent was not guilty of fraud in the non-performance of its obligation, grounded as it was on the interpretation of the contract. Petitioners appealed the case to the CA on the following grounds: 1.1 THE LOWER COURT ERRED IN FINDING THAT THE RETURN OF THE FIRST PAYMENT OF P6,765,660.00 IS AN UNCONDITIONAL OBLIGATION ON THE PART OF THE DEFENDANTS;

1.2 THE LOWER COURT ERRED IN NOT FINDING AND DECLARING THAT THE OBLIGATION TO RETURN THE FIRST PAYMENT OF P6,765,660.00 IS A CONDITIONAL OBLIGATION OR IF NOT, IS AT LEAST AN OBLIGATION WITH A PERIOD; 1.3 THE LOWER COURT ERRED IN ORDERING DEFENDANTS, IN SOLIDUM, TO PAY PLAINTIFF P6,765,660.00 IN ADDITION TO THE PAYMENT OF 6% INTEREST PER ANNUM FROM THE FILING OF THE COMPLAINT UNTIL IT IS FULLY PAID, WITHOUT FIXING THE DURATION OF THE PERIOD WITHIN WHICH DEFENDANTS HAVE TO COMPLY WITH THEIR OBLIGATION; 1.4 THE LOWER COURT ERRED IN CONCLUDING THAT PLAINTIFF IS ENTITLED TO RECOVER ATTORNEYS FEES; and 1.5 THE LOWER COURT ERRED IN ORDERING DEFENDANTS, IN SOLIDUM, TO PAY PLAINTIFF 10% OF THE PRINCIPAL OBLIGATION FOR AND AS REASONABLE ATTORNEYS FEES. The CA dismissed the appeal and affirmed in toto the ruling of the trial court.16 Citing Article 1370 of the Civil Code and related cases,17 it declared that if the terms of a contract are clear with no doubt as to the intentions of the contracting parties, then the literal meaning of the stipulations shall control. It held that the disputed paragraph 8 of the deed is plain and unambiguous: in case respondent failed to pay the balance, the earnest money would be forfeited, but the first payment shall be returned to respondent. The appellate court declared that petitioners obligation to return the first payment was an unconditional one.18 Petitioners filed a motion for reconsideration. In its Resolution19 dated May 4, 2005, the CA partly granted the motion and declared that the liability of petitioners is only joint and not in solidum. The pertinent portion of the resolution reads: Our declaration in our Decision dated January 5, 2005, that it was an unconditional obligation on the part of the appellants to return to the appellee the first payment check of P6,765,660.00, [w]e meant that such obligation to return the subject payment is a pure obligation without a condition or a term or a period, hence demandable at once pursuant to Article 1179 of the New Civil Code. Nonetheless, after a re-examination of the records, [w]e failed to see any basis that appellants monetary obligations in [o]ur decision be "in solidum." Verily, there is solidary liability only when the obligation expressly so states, or when the law or nature of the obligation requires solidarity. None of such elements exists in this case. The subject sale agreement nor the nature of appellants obligation gave no sign that appellants liability in the case at bar is solidary. Apropos, the decisio n rendered in this case must be modified, in such a way that appellants liability to return the amount of P6,765,660.00 and pay attorneys fees, is only joint. ACCORDINGLY, appellants Motion for Reconsideration is partly granted in that their liability in this case is declared only a s joint, and not "in solidum." In all other respect[s], [o]ur Decision dated January 5, 2005 stands. SO ORDERED.201vvphi1.nt In the instant petition for review on certiorari, petitioners present the following issues to be resolved by the Court: 6.1.a. Whether the obligation of petitioners to return the first payment of P6,765,660.00 is an unconditional obligation or not; 6.1.b. Whether the obligation to return the first payment of P6,765,660.00, assuming it to be unconditional, is a pure obligation or an obligation with a period; and 6.1.c. Whether or not the court must first fix the duration of the period within which petitioners have to comply with their obligation before respondent can demand from petitioners the fulfillment of said obligation.21

Petitioners argue that respondent failed to satisfy the three suspensive "conditions" under the disputed provision. Thus, they are not obliged to return the first payment (and respondents correlative right to demand the performance of the obligation) never arose. Even assuming that the CA was correct in its holding, the obligation should nevertheless be deemed one with a period. Petitioners claim that even if no period was indicated in the contract it does not follow that no such period was intended; "such an obligation was with an indefinite period, or the parties simply forgot to state in their contract the definite period for the return of said payment check." Petitioners pointed out that the parties likewise did not stipulate that the obligation was a pure obligation, demandable at once. Thus, the remedy available to respondent is not to demand the performance of the obligation, but to ask the court to fix the period within which to return the first payment, pursuant to Article 1197 of the Civil Code. According to petitioner, respondents action for collection/specific performance must be dismissed since the complaint states no cause of action. It was thus error for the CA to order them to pay respondent P6,765,660.00 with interest at 6% per annum without first fixing the period within which petitioners have to comply. For its part, respondent insists that the trial and appellate courts did not commit any error in ordering petitioners to return to it the sum of P6,765,660.00. The petition is denied. Paragraph 8 of the contract is clear and unambiguous. As the trial and appellate courts ruled, unlike the P1,000,000.00 earnest money which would be forfeited in favor of petitioners in case of respondents failure to deliver the balance of the total consideration, the first payment would be returned to respondent. This obligation to return the first payment can be gleaned from the second part of the disputed provision, which states: "but the first payment check of SIX MILLION SEVEN HUNDRED SIXTY-FIVE THOUSAND SIX HUNDRED SIXTY PESOS (PHP6,765,660.00) shall be returned to the BUYER without any additional charges to the SELLER." The Court cannot sustain petitioners contention that their obligation to return the first payment should be deemed one with a period, and that the Court should fix the period within which they should comply with the obligation. In the first place, there is no occasion to apply the first paragraph of Article 119722 since there is no showing that the parties had intended such a period. This matter was not raised in the Answer, the Amended Answer or the Second Amended Answer which petitioners filed in the trial court; no evidence was likewise offered to prove such intent. Indeed, the parties to a contract are bound by their agreement,23 considering that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.24 The cardinal rule in the interpretation of contracts is embodied in the first paragraph of Article 1370 of the Civil Code: "[i]f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control." This provision is akin to the "plain meaning rule" applied by Pennsylvania courts, which assumes that the intent of the parties to an instrument is "embodied in the writing itself, and when the words are clear and unambiguous the intent is to be discovered only from the express language of the agreement."25 It also resembles the "four corners" rule, a principle which allows courts in some cases to search beneath the semantic surface for clues to meaning.26 A courts purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them. The process of interpreting a contract requires the court to make a preliminary inquiry as to whether the contract before it is ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written terms of the contract are not ambiguous and can only be read one way, the court will interpret the contract as a matter of law. If the contract is determined to be ambiguous, then the interpretation of the contract is left to the court, to resolve the ambiguity in the light of the intrinsic evidence.271a\^/phi1.net In our jurisdiction, the rule is thoroughly discussed in Bautista v. Court of Appeals:28 The rule is that where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids. The intention of the parties must be gathered from that language, and from that language alone. Stated differently, where the language of a written contract is clear and unambiguous, the contract must be taken to mean that which, on its face, it purports to mean, unless some good reason can be assigned to show that the words should be understood in a different sense. Courts cannot make for the parties better or more equitable agreements than they themselves have been satisfied to make, or rewrite contracts because they operate harshly or inequitably as to one of the

parties, or alter them for the benefit of one party and to the detriment of the other, or by construction, relieve one of the parties from the terms which he voluntarily consented to, or impose on him those which he did not. CONSIDERING THE FOREGOING, the Court resolved to DENY the petition. The Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 77559 are AFFIRMED. SO ORDERED. G.R. No. 121158 December 5, 1996 CHINA BANKING CORPORATION, ATTYS. REYNALDO M. CABUSORA and RENATO C. TAGUIAM, petitioners, vs. COURT OF APPEALS, HON. PEDRO T. SANTIAGO, SPS. SO CHING and CRISTINA SO, and NATIVE WEST INTERNATIONAL TRADING CORP., respondents. FRANCISCO, J.:p China Banking Corporation (China Bank) extended several loans to Native West International Trading Corporation (Native West) and to So Ching, Native West's president. Native West in turn executed promissory notes 1 in favor of China Bank. So Ching, with the marital consent of his wife, Cristina So, additionally executed two mortgages over their properties, viz., a real estate mortgage executed on July 27, 1989 covering a parcel of land situated in Cubao, Quezon City, under TCT No. 277797 2, and another executed on August 10, 1989 covering a parcel of land located in Mandaluyong, under TCT No. 5363. 3 The promissory notes matured and despite due demands by China Bank neither private respondents Native West nor So Ching paid. Pursuant to a provision embodied in the two mortgage contracts, China Bank filed petitions for the extra-judicial foreclosure of the mortgaged properties before Notary Public Atty. Renato E. Taguiam for TCT No. 277797, 4 and Notary Public Atty. Reynaldo M. Cabusora for TCT No. 5363, 5 copies of which were given to the spouses So Ching and Cristina So. After due notice and publication, the notaries public scheduled the foreclosure sale of the spouses' real estate properties on April 13, 1993. Eight days before the foreclosure sale, however, private respondents filed a complaint 6 with the Regional Trial Court 7 for accounting with damages and with temporary restraining order against petitioners alleging the following causes of action: A. Defendants failed to comply with the mandates of Administrative Order No. 3 of the Supreme Court dated October 19, 1984. B. Defendants failed to comply with the mandates of Section 2 Presidential Decree No. 1079 dated January 28, 1977. C. MORTGAGORS liability limited to P6,500,000.00 and P3,500,000.00 respectively in the Mortgages Annexes A and B respectively, but the same are not included in the notice of foreclosure. D. Violation of Truth in Lending Act (RP Act No. 3765). E. In all the loans granted by DEFENDANT-BANK to plaintiffs and Borrowers, the Bank charged interests in excess of the rate allowed by the Central Bank. F. Violation of Article 1308 of the Civil Code. 8 On April 7, 1993, the trial court issued a temporary restraining order to enjoin the foreclosure sale. Thereafter counsels for the respective parties agreed to file their pleadings and to submit the case, without further hearing, for resolution. On April 28, 1993, the trial court, without passing upon the material averments of the complaint, issued an Order granting the private respondents' prayer for the issuance of preliminary injunction with the following proffered justification: From the foregoing, it is quite apparent that a question of accounting poses a thorny issue as between the litigants. Variance in the amounts involved relating to the loan agreements must be judiciously passed upon by the Court and this is only possible if a trial on the merits could be had as the matters appurtenant thereto are evidentiary in nature. Under the premises, the accounting issue being evidentiary in character calls for an issuance of a writ of preliminary injunction pending the adjudication of the case. The issuance thereof at this particular stage of the case is merely a preventive remedy designed to protect from irreparable injury to property or other rights plaintiff may suffer, which a court of equity may take

cognizance of by commanding acts to be done or prohibiting their commission, as in the instant suit, to restrain notaries public Cabusora and Taguiam as well as defendant China Banking Corporation from continuing with the auction sale of the subject properties, until further orders from this Court. Wherefore, premises considered, finding that the circumstances warrant the issuance of a preliminary injunction, plaintiff's prayer is hereby GRANTED. Consequent thereto, plaintiffs are hereby ordered to post a bond amounting to P1 (ONE) Million to answer for whatever damages defendant may suffer as a consequence of the writ. 9 Petitioners moved for reconsideration, but it was denied in an Order dated September 23, 1993. To annul the trial court's Orders of April 28, 1993 and September 23, 1993, petitioners elevated the case through certiorari and prohibition 10 before public respondent Court of Appeals. 11 In a decision dated January 17, 1995, respondent Court of Appeals held that Administrative Circular No. 3 is the governing rule in extra-judicial foreclosure of mortgage, which circular petitioners however failed to follow, and with respect to the publication of the notice of the auction sale, the provisions of P.D. No. 1079 is the applicable statute, 12 which decree petitioners similarly failed to obey. Respondent Court of Appeals did not pass upon the other issues and confined its additional lengthy discussion on the validity of the trial court's issuance of the preliminary injunction, finding the same neither capricious nor whimsical exercise of judgment that could amount to grave abuse of discretion. 13 The Court of Appeals accordingly dismissed the petition, as well as petitioners' subsequent motion for reconsideration. 14 Hence, the instant petition under Rule 45 of the Rules of Court reiterating the grounds raised before respondent court, to wit: I. PETITIONER CBC'S PETITIONS TO EXTRAJUDICIALLY FORECLOSE THE REAL ESTATE MORTGAGES OF JULY 27, 1989 AND AUGUST 10, 1989 THRU PETITIONERS-NOTARIES PUBLIC, AND THE SCHEDULED FORECLOSURE SALE ARE VALID AND LAWFUL; II. PRIVATE RESPONDENTS AND PETITIONER CBC HAD EXPRESSLY AGREED TO CONSIDER THE SAME MORTGAGES AS VALID SECURITIES FOR PROMPT AND FULL PAYMENT OF ALL AND ANY OBLIGATIONS OF THE FORMER FROM THE LATTER; III. THE SUPPOSED VARIANCE IN THE TOTAL AMOUNT OF UNPAID LOANS IS NOT A VALID BASIS TO ENJOIN THE FORECLOSURE OF THE QUESTIONED MORTGAGES. THE MERE FAILURE TO PAY THE LOAN SECURED BY SAID MORTGAGES IS THE ONLY, SINGLE REASON FOR THEIR LAWFUL FORECLOSURE;.

govern the extra-judicial foreclosure of the properties, and (4) whether or not the writ of preliminary injunction issued by the trial court is valid. Petitioners aver that the additional loans extended in favor of private respondents in excess of P6,500,000.00 and P3,500,000.00 amounts respectively stipulated in the July 27, 1989 and August 10, 1989 mortgage contracts are also secured by the same collaterals or real estate properties, citing as bases the introductory paragraph ("whereas clause") of the mortgage contracts, as well as the stipulations stated therein under the first and second paragraphs. Private respondents for their part argue that the additional loans are clean loans, relying on some isolated parts of the same introductory paragraph and first paragraph of the contracts, and also of the third paragraph. As both parties offered a conflicting interpretation of the contract, then judicial determination of the parties' intention is thus, inevitable. 17 Hereunder are the pertinent identical introductory paragraphs and paragraphs 1 to 3 of the July 27, 1989 and August 10, 1989 mortgage contracts: WHEREAS, the MORTGAGEE has granted, and may from time to time hereafter grant to the MORTGAGOR(S)/either of them/and/or NATIVE WEST INTERNATIONAL TRADING CORP. hereinafter called the DEBTOR(S) credit facilities not exceeding SIX MILLION FIVE HUNDRED THOUSAND PESOS ONLY (P6,500,000.00)* Philippine currency, and the MORTGAGEE had required the MORTGAGOR(S) to give collateral security for the payment of any and all obligations heretofore contracted/incurred and which may thereafter be contracted/incurred by the MORTGAGOR(S) and/or DEBTOR(S), or any one of them, in favor of the MORTGAGEE; NOW, THEREFORE, as collateral security for the payment of the principal and interest of the indebtedness/obligations herein referred to and the faithful performance by the MORTGAGOR(S) of his (her, its) obligations hereunder, the MORTGAGOR(S) hereby execute(s) a FIRST MORTGAGE, in favor of the MORTGAGEE, free from all liens and encumbrances of any kind, that (those) certain parcel(s) of land, together with all the buildings/machineries/equipment improvements now existing thereon, and which may hereafter be placed thereon, described in the Schedule of mortgaged properties described hereunder and/or which is hereto attached, marked Exhibit "A" and made a part thereof. 1. It is agreed that this mortgage shall respond for all the obligations contracted/incurred by the MORTGAGOR(S) and/or DEBTOR(S) or any one of them, in favor of the MORTGAGEE up to the said sum of SIX MILLION FIVE HUNDRED THOUSAND PESOS ONLY (P6,500,000.00)* regardless of the manner in which the said obligations may have been contracted/incurred by the MORTGAGOR(S) and/or DEBTOR(S) whether by advances or loans made to him (her, it) by the MORTGAGEE, by the negotiation of mercantile documents, including trust receipts, by the execution by the MORTGAGOR(S) and/or DEBTOR(S) of money market instruments/commercial papers, undertakings of guaranty of suretyship, or by endorsement of negotiable instruments, or otherwise, the idea being to make this deed a comprehensive and all embracing security that it is. 2. Payments on account of the principal and interest of the credit granted by the MORTGAGEE to the MORTGAGOR(S) and/or DEBTOR(S) may be made from time to time, and as often as the MORTGAGOR(S) may elect; provided, however, that in the event of such payments being so made that the indebtedness to the MORTGAGEE may from time to time be reduced the MORTGAGEE may make further advances and all sums whatsoever advanced by the MORTGAGEE shall be secured by this mortgage, and partial payments of said indebtedness from time to time shall not thereby be taken to reduce by the amount of such payments the credit hereby secured. The said credit shall extend to any account which shall, within the said limit of P6,500,000.00* exclusive of interest, be fluctuating and subject to increase or decrease from time to time as the MORTGAGEE may approve, and this mortgage shall stand as security for all indebtedness of the MORTGAGOR(S) and/or DEBTOR(S), or any one of them, at any and all times outstanding, regardless of partial or full payments at any time or times made by the MORTGAGOR(S) and/or DEBTOR(S). 3. It is hereby agreed that the MORTGAGEE may from time to time grant the MORTGAGOR(S)/DEBTOR(S) credit facilities exceeding the amount secured by this mortgage, without affecting the liability of the MORTGAGOR(S) under this mortgage up to the amount stipulated. 18 An important task in contract interpretation is the ascertainment of the intention of the contracting parties which is accomplished by looking at the words they used to project that intention in their contract, i.e., all the words, not just a

IV. PETITIONER BANK HAD FURNISHED PRIVATE RESPONDENTS WITH COPIES OF DISCLOSURE STATEMENTS IN COMPLIANCE WITH THE TRUTH IN LENDING ACT, AND CHARGED THEM INTERESTS IN ACCORDANCE WITH LAW AND PURSUANT TO ITS EXPRESS AGREEMENT WITH THE LATTER; V. THE P1.0 MILLION INJUNCTION BOND REQUIRED BY THE HONORABLE COURT A QUO ON PRIVATE RESPONDENTS IS GROSSLY AND PATENTLY INADEQUATE. 15 At the outset, the Court's attention is drawn to the fact that since the filing of this suit before the trial court, none of the substantial issues have been resolved. To avoid and gloss over the issues raised by the parties, as what the trial court and respondent Court of Appeals did, would unduly prolong this litigation involving a rather simple case of foreclosure of mortgage. Undoubtedly, this will run counter to the avowed purpose of the rules, i.e., to assist the parties in obtaining just, speedy and inexpensive determination of every action or proceeding. 16 The Court, therefore, feels that the central issues of the case, albeit unresolved by the courts below, should now be settled specially as they involved pure questions of law. Furthermore, the pleadings of the respective parties on file have amply ventilated their various positions and arguments on the matter necessitating prompt adjudication. Now to the core issues. As the Court sees it, the crucial issues are: (1) whether or not the loans in excess of the amounts expressly stated in the mortgage contracts can be included as part of the loans secured by the real estate mortgages, (2) whether or not petitioners can extra-judicially foreclose the properties subject of the mortgages, (3) whether or not Administrative Order No. 3 should

particular word or two, and words in context, not words standing alone. 19 Indeed, Article 1374 of the Civil Code, states that "the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly." Applying the rule, we find that the parties intent is to constitute the real estate properties as continuing securities liable for future obligations beyond the amounts of P6.5 million and P3.5 million respectively stipulated in the July 27, 1989 and August 10, 1989 mortgage contracts. Thus, while the "whereas" clause initially provides that "the mortgagee has granted, and may from time to time hereafter grant to the mortgagors . . . credit facilities not exceeding six million five hundred thousand pesos only (P6,500,000.00)**" yet in the same clause it provides that "the mortgagee had required the mortgagor(s) to give collateral security for the payment of any and all obligations heretofore contracted/incurred and which may thereafter be contracted/incurred by the mortgagor(s) and/or debtor(s), or any one of them, in favor of the mortgagee" which qualifies the initial part and shows that the collaterals or real estate properties serve as securities for future obligations. The first paragraph which ends with the clause, "the idea being to make this deed a comprehensive and all embracing security that it is" supports this qualification. Similarly, the second paragraph provides that "the mortgagee may take further advances and all sums whatsoever advanced by the mortgagee shall be secured by this mortgagee . . ." And although it was stated that "[t]he said credit shall extend to any account which shall, within the said limit of P6,500,000.00 exclusive of interest", this part of the second sentence is again qualified by its succeeding portion which provides that "this mortgage shall stand as security for all indebtedness of the mortgagor(s) and/or debtor(s), or any one of them, at any and all times outstanding . . ." Again, under the third paragraph, it is provided that "the mortgagee may from time to time grant the mortgagor(s)/debtor(s) credit facilities exceeding the amount secured by this mortgage . . ." The fourth paragraph, 20 in addition, states that ". . . all such withdrawals, and payments, whether evidenced by promissory notes or otherwise, shall be secured by this mortgage" which manifestly shows that the parties principally intended to constitute the real estate properties as continuing securities for additional advancements which the mortgagee may, upon application, extend. It is well settled that mortgages given to secure future advancements or loans are valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. 21 Anent the second issue, we find that petitioners are entitled to foreclose the mortgages. In their complaint for accounting with damages pending with the trial court, private respondents averred that: 8. Up to and until February, 1993, PLAINTIFF-CORPORATION had paid to the DEFENDANT-BANK, the amount of THREE HUNDRED FIFTY THOUSAND (P350,000.00) Pesos, Philippine Currency, and was willing to pay the balance in installments of FOUR HUNDRED THOUSAND (P400,000.00) Pesos, Philippine Currency, every month, in the meantime, but the DEFENDANT-BANK refused to accept, demanding instead SEVEN HUNDRED MILLION (P700,000,000.00) Pesos, Philippine Currency, a month. 9. Inspite of the expressed willingness and commitment of plaintiffs to pay their obligation in a manner which they could afford, on March 11, 1993, MORTGAGORS and DEFENDANT-CORPORATION, each received a Letter of Demand from DEFENDANT-BANK, for the payment of P28,775,615.14 exclusive of interest and penalty evidenced by 11 promissory notes enclosed therein . . . . 10. Upon receipt of the letter, PLAINTIFF-CORPORATION through its President pleaded with the Chairman of the Board of the DEFENDANT-BANK, through whom Defendant-Corporation was transacting business with, to accept its offer of payment of FOUR HUNDRED THOUSAND (P400,000.00) Pesos, Philippine Currency, a month, in the meantime, which was again refused by the said Chairman. 22 which allegations are a clear admission that they were unable to settle to the fullest their obligation. Foreclosure is valid where the debtors, as in this case, are in default in the payment of their obligation. 23 The essence of a contract of mortgage indebtedness is that a property has been identified or set apart from the mass of the property of the debtor-mortgagor as security for the payment of money or the fulfillment of an obligation to answer the amount of indebtedness, in case of default of payment. 24 It is a settled rule that in a real estate mortgage when the obligation is not paid when due, the mortgagee has the right to foreclose the mortgage and to have the property seized and sold in view of applying the proceeds to the payment of the obligation. 25 In fact, aside from the mortgage contracts, the promissory notes executed to evidence the loans also authorize the mortgagee to foreclose on the mortgages. Thus:

. . . CHINA BANKING CORPORATION is hereby authorized to sell at public or private sales such securities or things of value for the purpose of applying their proceeds to such payments. 26 And while private respondents aver that they have already paid ten million pesos, an allegation which has still to be settled before the trial court, the same cannot be utilized as a shield to enjoin the foreclosure sale. A mortgage given to secure advancements, we repeat, is a continuing security and is not discharged by repayment of the amount named in the mortgage, until the full amount of the advancements are paid. 27 With respect to the third issue, we find private respondents' contention that Administrative Order No. 3 is the governing rule in foreclosure of mortgages misplaced. The parties, we note, have stipulated that the provisions of Act No. 3135 is the controlling law in case of foreclosure. Thus: 17. The MORTGAGOR(S) hereby grant(s) unto the MORTGAGEE full and irrevocable power of attorney coupled with interest, in the event of breach of any of the conditions of this mortgage, to sell, in its discretion, the mortgaged properties at public auction, for cash and to the highest bidder, in the Province or City where the mortgaged properties are located, before the Sheriff, or a Notary Public, without court proceedings, after posting notices of sale for a period of twenty days in three public places in said place; and after publication of such notice in a newspaper of general circulation in the said place once a week, for three consecutive weeks, and the MORTGAGEE is hereby authorized to execute the deed of sale and all such other documents as may be necessary in the premises all in accordance with the provisions of Act No. 3135 of the Philippine Legislature, as amended, and Section 78 of Republic Act No. 337: . . . 28 (Emphasis supplied.) By invoking the said Act, there is no doubt that it must "govern the manner in which the sale and redemption shall be effected." 29 Clearly, the fundamental principle that contracts are respected as the law between the contracting parties finds application in the present case, 30 specially where they are not contrary to law, morals, good customs and public policy. Moreover, Administrative Order No. 3 is a directive for executive judges and clerks of courts which, under its preliminary paragraph, is "[i]n line with the responsibility of an Executive Judge, under Administrative Order No. 6, dated June 30, 1975, for the management of courts within his administrative area, included in which is the task of supervising directly the work of the Clerk of Court, who is also the Ex-Oficio Sheriff, and his staff, . . . ." Surely, a petition for foreclosure with the notary public is not within the contemplation of the aforesaid directive as the same is not filed with the court. At any rate, Administrative Order No. 3 cannot prevail over Act No. 3135, as amended. It is an elementary principle in statutory construction that a statute is superior to an administrative directive and the former cannot be repealed or amended by the latter. On the last issue, we find that the issuance of the writ of injunction by the trial court unjustified. A writ of preliminary injunction, as an ancillary or preventive remedy, may only be resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the pendency of the principal action. 31 But before a writ of preliminary injunction may be issued, there must be a clear showing by the complaint that there exists a right to be protected and that the acts against which the writ is to be directed are violative of the said right. 32 In the case at bench, we fail to see any reason why the foreclosure of the mortgages should be enjoined. On the face of the clear admission by private respondents that they were unable to settle their obligations which were secured by the mortgages, petitioners have a clear right to foreclose the mortgages which is a remedy provided by law. Thus, in Caltex Philippines, Inc. v. Intermediate Appellate Court, 33 we reiterated the rule that: . . . where a debt is secured by a mortgage and there is a default in payment on the part of the mortgagor, the mortgagee has a choice of one (1) or two (2) remedies, but he cannot have both. The mortgagee may: 1) foreclosure the mortgage; or 2) file an ordinary action to collect the debt. When the mortgagee chooses the foreclosure of the mortgage as a remedy, he enforces his lien by the sale on foreclosure of the mortgaged property. The proceeds of the sale will be applied to the satisfaction of the debt. With this remedy, he has a prior lien on the property. In case of a deficiency, the mortgagee has the right to claim for the deficiency resulting from the price obtained in the sale of the real property at public auction and the outstanding obligation at the time of the foreclosure

proceedings (Soriano v. Enriquez, 24 Phil 584; Banco de Islas Filipinas v. Concepcion Hijos, 53 Phil 86; Banco Nacional v. Barreto, 53 Phil 101). On the other hand, if the mortgagee resorts to an action to collect the debt, he thereby waives his mortgage lien. He will have no more priority over the mortgaged property. If the judgment in the action to collect is favorable to him, and it becomes final and executory, he can enforce said judgment by execution. He can even levy execution on the same mortgaged property, but he will not have priority over the latter and there may be other creditors who have better lien on the properties of the mortgagor. 34 WHEREFORE, the instant petition is hereby GRANTED. The assailed Decision, as well as the Resolution, of the Court of Appeals dated January 17, 1995 and July 7, 1995, respectively, are hereby REVERSED and SET ASIDE. The preliminary writ of injunction issued by the trial court is hereby NULLIFIED. This case is REMANDED to the court of origin for further proceedings in conformity with this decision. SO ORDERED. Narvasa, C.J., Davide, Jr., Melo and Panganiban, JJ., concur. G.R. No. L-62441 December 14, 1987 BANK OF THE PHILIPPINE ISLANDS, as Successor to Peoples Bank and Trust Company, petitioner, vs. BENJAMIN PINEDA, doing business under the name and style of PIONEER IRON WORKS, respondent. BIDIN, J.: This is a Petition for Review on certiorari, seeking the reversal of the Decision of the First Division 1 of the Court of Appeals in CA- G.R. No. 66365-R entitled "Benjamin Pineda, etc., plaintiff-appellee vs. Southern Industrial Projects Inc., Bacong Shipping Company, S.A. Gacet Inc., Interocean Shipping Corporation and Peoples Bank and Trust Co., defendant-appellant, " affirming the decision of the trial court, the dispositive portion of which reads: Wherefore, the appealed decision being in accordance with the law and the evidence, the same is hereby affirmed, with proportionate cost against appellant. The facts of this case as found by the Court of Appeals are as follows: Southern Industrial Project, Inc. (SIP for short) is a corporation the majority stockholder of which is the Concon Family. Bacong Shipping Company, S.A. (Bacong, for short) is a Panamanian corporation organized to operate vessels purchased by SIP under Panamanian Flag and its president is Gregorio A. Concon. SIP and/or Bacong purchased the vessels SS "Southern Comet," SS "Southern Express" and SS "Southern Hope," thru financing furnished by defendant Peoples Bank and Trust Company, now the Bank of the Philippine Islands. To secure the payment of whatever amounts maybe disbursed for the aforesaid purpose, the said vessels were mortgaged to Peoples Bank and Trust Company. For the operation of the said vessels, these were placed under the booking agency of defendant Interocean Shipping Corporation, with the undertaking that the freight revenues from their charter and operation shall be deposited with the Trust Department of Peoples Bank and Trust Company and that disbursements made therefrom shall be covered by vouchers bearing the approval of SIP. As Peoples Bank and Trust Company and SIP were not satisfied with the amount of revenues being deposited with the said Bank, it being suggested that diversions thereof were being made, Gregorio A. Concon of SIP and/or Bacong and Roman Azanza of Peoples Bank and Trust Company, organized S.A. Gacet, Inc. to manage and supervise the operation of the vessels with Ezekiel P. Toeg as the manager thereof. Accordingly, on August 15, 1966, a Management Contract (Exh. A., Exh. 1-SIP and Exh. 3-Peoples Bank) was entered into between SIP and GACET, Inc., placing the supervision and management of the aforementioned vessels in the hands of GACET, Inc., which was to run for a period of six (6) months, renewable at the will of the parties, without however, terminating the booking agency of interocean Shipping Corporation. The said Management Contract stipulates, among others, that

The agent GACET may not borrow money for the husbanding of vessels "without special authority" from the appellant bank (5 [f]) All office records required as well as books of accounts" shall "be available for inspection" by the appellant bank and "may at any time temporarily take possession of such records and books to make a complete audit" (5 [h]) The appellant bank may-obtain copies of documents from any or all of GACET's booking agents pertaining to transactions entered into by said booking agents" (5 (h)) [1]); The appellant bank has the right "(t)o inquire and obtain information, by telephone, or otherwise such data as the name of the shippers, nature of cargo, destination of cargo, freight rates, etc. " (5 (h)) [2]); and, The appellant bank has the right "(t)o check on remittances made by shipper to the booking agent" etc. (5)[3]). Likewise, under the terms of said Management Contract, the Peoples Bank and Trust Company was designated as depository of all revenues coming from the operation of the subject vessels thereby enabling it to control all expenses of GACET, Inc., since they win all be drawn against said deposit. During the period comprising March 16, 1967 and August 25, 1967, GACET and Interocean in performing their obligations under said Management Contract, contracted the services of herein plaintiff-appellee, Benjamin Pineda doing business under the name and style "Pioneer Iron Works," to carry out repairs, fabrication and installation of necessary parts in said vessels in order to make them seaworthy and in good working operation. Accordingly, repairs on the vessels were made. Labor and materials supplied in connection therewith, amounted to P 84,522.70, P 18,141.75 of which was advanced by Interocean, thereby leaving a balance of P 62,095.95. For this balance, Interocean issued three checks (Exhibit I) and the third one for P 17,377.57 (Exh. J). When these checks were however presented to the drawee, Peoples Bank and Trust Company, they were dishonored as defendant Interocean stopped payment thereon (Exhs. H-2,I-2 & J-2). Meanwhile and by reason of the inability of SIP and/or Bacong to pay their mortgage indebtedness which was past due since 1964, the mortgagee Peoples Bank and Trust Company threatened to foreclose the mortgage on said vessels. In order to avoid the inconvenience and expense of imminent foreclosure proceedings, SIP and/or Bacong sold said vessels to Peoples Bank by way of dacion en pago. The sale is evidenced by three (3) deeds of sale all dated January 19, 1968 (Exhs. C, D, & E). Immediately preceding the execution of said deeds of sale, SIP, Bacong and Peoples Bank executed a "Confirmation of Obligation" (Exh. "B") whereby SIP and Bacong (1) acknowledged being indebted to defendant bank, the payment of which indebtedness was secured by chattel mortgages on said vessels, (2) agreed to sell and convey to defendant bank the aforementioned vessels by separate deed of sale for the total purchase price of P 3,038,000.00 to be applied as partial payment on account of their mortgage indebtedness; and (3) expressly recognized that after such application, a substantial balance will still remain unpaid and owing by SIP and Bacong which remaining balance they have agreed to confirm and pay to the bank on demand with 12% interest per annum. Likewise, listed in the "Confirmation of Obligation" were some of the accounts acknowledged and confirmed by the parties to be outstanding at the time, in connection with the subject vessels as followsa) Accrued Salaries and allotments........................ P180,687.04 b) National Shipyard ......................................................31,068.57 c) Pioneer Iron Works : ..................................................82,877.57 d) Pacific Engineering Corporation .............................152,094.85 e) Esso Standard Eastern Account ..........................1,693,913.25 f) Cost of bailing out of the vessels in Japan crews, salaries, etc.................................... 328,692.50

TOTAL.................................................................. P 2,954 833,34 The Deed of "Confirmation of Obligation" also provides That Southern and/or Bacong acknowledge that the total purchase price of "TSS Southern Comet, That Southern Hope" and "SS Southern Express" in the sum of THREE MILLION THIRTY EIGHT THOUSAND PESOS (P 3,038,000.00), Philippine currency shall be applied on account of their mortgage obligations, as they appear on the books of the BANK, and whatever amount remains outstanding after application (or set off) is hereby acknowledged to be owed to the BANK and shall be payable with interest at the rate of 12170 per annum." That part (sic) from the foregoing SOUTHERN and/or BACONG have authorized the BANK to pay certain expenses, accounts of charges in connection with the sold vessels, the principal items being those listed below." (These are the accounts listed above). "It is agreed that this is not a final or complete listing and the above expenses shall be subject to final adjustment after verification of the amounts actually paid or advanced by the BANK under the said authority from SOUTHERN and/or BACONG. It is further agreed that these expenses shall also be subject to the terms of condition No. 1 above." (Those enclosed in parenthesis are supplied). On October 1, 1968, plaintiff instituted the present action (Civil Case No. 74379) before the Court of First Instance of Manila, seeking to recover from SIP, GACET, Interocean and the Peoples Bank and 'Trust Company the principal sum of P62,095.92 with interests thereon from the respective dates of each repair order until the same is fully paid, which amount was allegedly the total unpaid balance of the cost of repairs, fabrication and installation of necessary parts carried out by the said plaintiff on the aforenamed vessels. Answering the complaint, defendants Peoples Bank and Trust Co., now Bank of P.I. and Southern Industrial Projects, Inc. (SIP) alleged that the abovementioned claim is the personal responsibility of Interocean Shipping Corporation and/or Gacet, Inc. and deny liability thereof Defendant Bacong Shipping Company, S.A. (Bacong on its part denies knowledge of the obligation claiming it did not have any transaction whatsoever with the plaintiff while defendant Interocean Shipping Corporation and GACET, Inc. also deny liability contending that the obligation being lien on the vessels upon which services and repairs were made by the plaintiff, defendant Peoples Bank & Trust Co., now Bank of P.I., being the ultimate owners thereof should be the one liable therefor. After trial, the court a quo rendered judgment the dispositive portion of which reads as follows WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering defendants Southern Industrial Projects, Inc. and Peoples Bank and Trust Company, now Bank of P.I., to pay plaintiff Benjamin Pineda doing business under the name and style of Pioneer Iron Works, jointly and severally, the amount of P62,095.92, with legal rate of interest thereon from the date of the filing of the complaint, attorney's fees in the amount of P10,000.00, and the costs of the suit. The complaint is dismissed against defendants Interocean Shipping Corporation and Gacet, Inc. SO ORDERED. From the foregoing decision, defendants Bank of P.I. and Southern Industrial Projects, Inc. appealed to the Court of Appeals but the latter, finding the aforequoted decision to be in accordance with law and the evidence, affirmed the same, Hence, this petition. Petitioner raised the following assignment of errors: I. The Intermediate Appellate Court erred in affirming the findings of the lower court that petitioner, in purchasing the vessels, assumed the obligations of Southern Industrial Projects, Inc. and/or Bacong Shipping Company. II. The Intermediate Appellate Court erred in affirming the ruling of the lower court that petitioner is liable to private respondent when the same was based on an erroneous interpretation of the "confirmation of obligation" in relation to the deeds of sale of the vessels.

III. The findings of the lower court as affirmed by the Intermediate Appellate Court that private respondent had a valid and subsisting repairer's lien is contrary to law as well as the rulings set forth by this Honorable Court. IV. The Intermediate Appellate Court erred in not holding that the lower court has no jurisdiction over the subject matter of the action or suit which seeks to enforce a statutory lien under paragraph 5 of Article 2241 of the Civil Code of the Philippines. As correctly pointed out by the Court of Appeals in its decision, the various assigned errors boil down to the issue of who should be liable for the cost of repairs undertaken on the subject vessels. Petitioner raised the following questions: (1) whether the findings of the lower court are supported by facts and evidence; and (2) whether or not petitioner is liable to respondent on the basis of the "Confirmation of Obligation. " The general rule is that findings of facts of the Court of Appeals are not subject to review by the Supreme Court. (Alaras vs. Court of Appeals, 64 SCRA 671; Perido vs. Perido, 13 SCRA 97: Mendoza vs. Court of Appeals, 84 SCRA 67; Manlapaz vs. Court of Appeals, 147 SCRA 236 [1987]; Baniqued vs. Court of Appeals, 127 SCRA 50 [1984]; Moran vs. Court of Appeals, 133 SCRA 88 [1984]; Collector of Customs vs. Court of Appeals, 137 SCRA 3 [1985]; Espiritu vs. Court of Appeals, 137 SCRA 50 [1985]; Premier Insurance & Surety Corp. vs. Intermediate Appellate Court, et al., 141 SCRA 423 [1986]: Director of Lands vs. Funtillar, 142 SCRA 57 [1986]; Republic vs. Intermediate Appellate Court, 144 SCRA 705 [1986]: subject to the following exceptions; (1) when the conclusion is a finding grounded entirely on speculation, surmises or conjectures (Joaquin vs. Navarro, 93 Phil. 257); (2) when the inference made is manifestly mistaken, absurd or impossible (Luna vs. Linatok 74 Phil. 15); (3) where there is a grave abuse of discretion (Buyco vs. People, 51 O.G. 2927); (4) when the judgment is based on a misapprehension of facts (Cruz vs. Sosing, L-4875, November 27, 1953; (5) when the findings of fact are conflicting (Casica vs. Villaseca, L-9590, April 30, 1957); and (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee (Evangelista vs. Alto Surety & Ins. Co., L11139, April 23, 1958; Ramos vs. Pepsi Cola, L-22533, February 9, 1967, 19 SCRA 289)." (cited in Manlapaz vs. Court of Appeals, 147 SCRA 236 [1987]; Tolentino vs. de Jesus, 56 SCRA 167 [1974]; Carolina Industries, Inc. vs. CMS Stock Brokerage, Inc., et al., 97 SCRA 734 [1980]; Manero vs. Court of Appeals, 102 SCRA 317 [1981]; Moran, Jr. vs. Court of Appeals, supra Sacay vs. Sandiganbayan, 142 SCRA 593 [1983]; Director of Lands vs. Funtillar, et al., supra) The petitioner argued that the findings of the lower court are contrary to, and are not supported by the evidence. There is no question that at the time subject obligation was incurred, the vessels were owned by defendant Southern industrial Projects, Inc. although mortgaged to People's Bank and Trust Company. Hence, the former as owner is liable for the costs of repairs made on the vessels. On the other hand, Interocean Shipping Corporation and S.A. Gacet undeniably mere agents of the owner, a disclosed principal, cannot be held liable for repairs made on the vessels to keep them in good running condition in order to earn revenue, there being no showing that said agents exceeded their authority. Ultimately therefore, the issue which remains is, whether or not People's Bank, now Bank of P.I. being the purchaser of said vessels, is jointly and severally liable for the outstanding balance of said repairs, admittedly a lien on the properties in question. It appears that Bank of P.I. seeks shelter in a deed of "Confirmation of Obligation" entered into between buyer and seller before the execution of a deed of sale between them. Buyer, Bank of P.I., maintains that it has the option of whether or not to pay the obligations listed thereunder, one of which is the repairs undertaken by private respondent, as inferred from the phrase that the owner of the vessels merely authorized petitioner bank to pay certain expenses and charges in connection with said vessels. The latter stressed the fact that nowhere in said deed was the bank placed under obligation to pay any of the listed indebtedness of the owner. The cardinal rule in the interpretation of contracts is to the effect that the intention of the contracting parties should always prevail because their will has the force of law between them (Kasilag vs. Rodriguez, et al., 69 Phil. 217 [1939]; Sec. 10, Rule 130 of the New Rules of Court). Thus, in order to judge the intention of the contracting parties, regard must be had principally to their acts both contemporaneous and subsequent to the contract (Atlantic Gulf Co. vs. Insular Government, 10 Phil. 166 [1908]), "the circumstances under which it was made, including the situation of the subject thereof and of the parties to it, may be shown, so that the judge may be placed in the position of those whose language he is to interpret." (Sec. 11, Rule 130 of

the New Rules of Court). It has been held that once this intention of the parties has been ascertained, it becomes an integral part of the contract as though it has been originally expressed therein in unequivocal terms (Nielson & Co., Inc. vs. Lepanto Consolidated Mining Co., 18 SCRA 1040 [19661). Likewise, well settled is the fact that in construing a writing particularly a written agreement, the reason behind the circumstances surrounding its execution are of paramount importance to place the interpreter in the situation of the parties concerned at the time the writing was executed (Vicente Gotamco Hermanos vs. Shotwell 38 SCRA 107 [1971]), It is undisputed that S.A. Gacet, Inc., the managing corporation, is only a creation of Gregorio A. Concon of Southern Industrial Projects, Inc. and of Roman Azanza of People's Bank and Trust Company obviously for the protection of their respective interests on the properties in question, after both expressed dissatisfaction with the amount of revenue being deposited with the said bank which suggests that diversions thereof were being made. Thus, although it was SIP and GACET which entered into the Management Contract, it was expressly stipulated thereunder, among others, that GACET may not borrow money for the husbanding of vessels without special authority from the petitioner bank. In addition, all office records were required to be subject to inspection and complete audit by the latter, including all remittances made by the Shipper to the booking agent. Otherwise stated, petitioner was already in control of the vessels as early as August 15, 1966, the date the Management Contract was signed (Decision, CA G.R No. 66365-R), (Rollo, p. 28). In fact, the contract itself for the repairs of the vessels which is now the bone of contention, was entered into by GACET and INTEROCEAN with private respondent Benjamin Pineda with the approval of petitioner Bank. This lends credence to the claim of Pineda that he was led to believe that he will be paid the corresponding amount for the repairs, as in fact he was paid with checks which were later dishonored. The records show that SIP incurred debts by reason of these vessels not only here in the Philippines but also in Japan, notably ESSO Standard Eastern which attached said vessels in Japan. As admitted by Gregorio A. Concon, fourteen banks were after the assets of the corporation. Under this distressed financial condition and with People's Bank also threatening to foreclose the mortgages on these vessels, SIP decided to sell the vessels to People's Bank (Record on Appeal, pp. 55-56). But a deed of "Confirmation of Obligation" was first entered into between SIP and/or Bacong Shipping and People's Bank, confirming and acknowledging the obligations outstanding at the time, among which is the obligation to private respondent in the amount corresponding to the repairs in question. Petitioner however insists on its theory based on a separate interpretation of the deed of "Confirmation of Obligation" that on the authority granted thereunder by the seller (the previous owner), responsibility to pay the listed obligation was not compulsory or mandatory (Record on Appeal, pp. 59- 60). Other fundamental rules in the interpretation of contracts no less important than those already indicated are to the effect that where the terms are doubtful, the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly (Art. 1374, Civil Code), and if some stipulation of any contract should admit of several meanings, it shall be understood as having that import which is most adequate to render it effectual (Art. 1373, Civil Code) and the words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract (Art. 1375, Civil Code). The reason for these rules is that it must be presumed that the parties had intended an effective act and not one that is impracticable or illusory (Caguioa Comments and Cases on Civil Law, p. 592,1983 Ed.). It will be observed that the deed of "Confirmation of Obligation" is but a part or a corollary to the deeds of sale of the three vessels. In fact, specific reference thereto was made by said deeds of sale as to the settlement of obligations, among which are the repairs in question. Said provision in the deeds of sale reads: Any amount or amounts that the Bank has voluntarily paid and/or has been compelled to pay, or hereafter will voluntarily and/or will be compelled to pay for any encumbrance, claim, lien or particular average in order to save the vessel from any legal seizure or suits by third parties, and for any repair, supplies, provisions, accrued salaries and allotment of crew, cost of bailing out of the vessel, and any other expenses or accounts of the said vessel, shall be for the account of Southern and/or Bacong in accordance with their agreement preceding this conveyance executed on January 19, 1968 ... It will be observed that the above stipulation interpreted together with the deed of "Confirmation of Obligation" leaves no room for doubt that while the bank may indeed pay certain obligations voluntarily or by choice, there are those that the Bank will be compelled to pay to save the vessel from any legal seizure or suits by third parties. In other words, the primary purpose of the

contracts is the protection of the vessels. Among them are liens on the same under which the obligation to private respondent properly belongs. However, petitioner contends that assuming that such obligations are liens on said vessels, they are deemed to have been waived and discharged when respondent released and delivered said vessels to GACET and/or Interocean which ordered said repairs prior to their sale and conveyance to petitioner (Rollo, p. 117). Such contention is untenable. It will be recalled that private respondent was paid the sum of P18,141.75 and for the balance of P62,095.95 Interocean issued three checks. Under the circumstances, private respondent has no basis or necessity at that time to exercise his right of retention under Art. 1731 of the Civil Code. The fact that later said checks were dishonored, as correctly argued by private respondent, cannot give validity to petitioner's argument that the former has waived or abandoned his liens on the vessels. To pursue such view would put a premium on an act of deception which led private respondent to believe that he will be fully paid. Furthermore, when the checks were dishonored, it was impossible for private respondent to enforce his lien because the vessels were already in Japan, outside the territorial jurisdiction of the Philippine courts (Brief for Plaintiff-Appellee, p. 19, Rollo, p. 128). In view of the foregoing facts, it was aptly stated by the trial court and affirmed by the Court of Appeals that when the parties executed the deed of "Confirmation of Obligation" they really intended to confirm and acknowledge the existing obligations for the purpose of the buyer assuming liability therefor and charging them to the seller after proper accounting, verification and set offs have been made. Indeed, there is merit in the trial court's view that if there was no intention on the part of People's Bank (now Bank of P.I., to assume responsibility y for these obligations at the time of the sale of the si it vessels, there is no sense in executing said Deed of Confirmation together with the deeds of sale and the stipulations thereunder would be pointless (Record on Appeal, pp. 61-62, Annex "C", Rollo, P. 33). Finally, it is indisputable that the repairs made on the vessels ultimately redounded to the benefit of the new owner for without said repairs, those vessels would not be seaworthy. Under Art. 2142 of the Civil Code, such acts "give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another." WHEREFORE, the petition is Denied and the decision appealed from is hereby AFFIRMED. SO ORDERED. Gutierrez, Jr., Feliciano and Cortes, JJ., concur. Fernan, J., took no part. G.R. No. 46623 December 7, 1939 MARCIAL KASILAG, petitioner, vs. RAFAELA RODRIGUEZ, URBANO ROQUE, SEVERO MAPILISAN and IGNACIO DEL ROSARIO, respondents. IMPERIAL, J.: This is an appeal taken by the defendant-petitioner from the decision of the Court of Appeals which modified that rendered by the court of First Instance of Bataan in civil case No. 1504 of said court and held: that the contract Exhibit "1" is entirely null and void and without effect; that the plaintiffs-respondents, then appellants, are the owners of the disputed land, with its improvements, in common ownership with their brother Gavino Rodriguez, hence, they are entitled to the possession thereof; that the defendant-petitioner should yield possession of the land in their favor, with all the improvements thereon and free from any lien; that the plaintiffs-respondents jointly and severally pay to the defendant-petitioner the sum of P1,000 with interest at 6 percent per annum from the date of the decision; and absolved the plaintiffs-respondents from the crosscomplaint relative to the value of the improvements claimed by the defendant-petitioner. The appealed decision also ordered the registrar of deeds of Bataan to cancel certificate of title No. 325, in the name of the deceased Emiliana Ambrosio and to issue in lieu thereof another certificate of title in favor of the plaintiffs-respondents and their brother Gavino Rodriguez, as undivided owners in equal parts, free of all liens and incumbrances except those expressly provided by law, without special pronouncement as to the costs.

The respondents, children and heirs of the deceased Emiliana Ambrosio, commenced the aforesaid civil case to the end that they recover from the petitioner the possession of the land and its improvements granted by way of homestead to Emiliana Ambrosio under patent No. 16074 issued on January 11, 1931, with certificate of title No. 325 issued by the registrar of deeds of Bataan on June 27, 1931 in her favor, under section 122 of Act No. 496, which land was surveyed and identified in the cadastre of the municipality of Limay, Province of Bataan, as lot No. 285; that the petitioner pay to them the sum of P650 being the approximate value of the fruits which he received from the land; that the petitioner sign all the necessary documents to transfer the land and its possession to the respondents; that he petitioner be restrained, during the pendency of the case, from conveying or encumbering the land and its improvements; that the registrar of deeds of Bataan cancel certificate of title No. 325 and issue in lieu thereof another in favor of the respondents, and that the petitioner pay the costs of suit. The petitioner denied in his answer all the material allegations of the complaint and by way of special defense alleged that he was in possession of the land and that he was receiving the fruits thereof by virtue of a mortgage contract, entered into between him and the deceased Emiliana Ambrosio on May 16, 1932, which was duly ratified by a notary public; and in counterclaim asked that the respondents pay him the sum of P1,000 with 12 per cent interest per annum which the deceased owed him and that, should the respondents be declared to have a better right to the possession of the land, that they be sentenced to pay him the sum of P5,000 as value of all the improvements which he introduced upon the land.lawphil.net On May 16, 1932 Emiliana Ambrosio, in life, and the petitioner executed the following public deed: "This agreement, made and entered into this 16th day of May, 1932, by and between Emiliana Ambrosio, Filipino, of legal age, widow and resident of Limay, Bataan, P.L., hereinafter called the party of the first part, and Marcial Kasilag, Filipino, of legal age, married to Asuncion Roces, and resident at 312 Perdigon Street, Manila, P.L., hereinafter called party of the second part. WITNESSETH: That the parties hereto hereby covenant and agree to and with each other as follows: ARTICLE I. That the party of the first part is the absolute registered owner of a parcel of land in the barrio of Alngan, municipality of Limay, Province of Bataan, her title thereto being evidenced by homestead certificate of title No. 325 issued by the Bureau of Lands on June 11, 1931, said land being lot No. 285 of the Limay Cadastre, General Land Registration Office Cadastral Record No. 1054, bounded and described as follows: Beginning at point marked 1 on plan E-57394, N. 84 32' W. 614.82 m. from B.B.M. No. 3, thence N. 66 35' E. 307.15 m. to point "2"; S. 5 07' W. to point "5"; S.6 10' E. 104.26 m. to point "4"; S. 82 17' W. to point "5"; S. 28 53' W. 72.26 m. to point "6"; N. 71 09' W. to point "7"; N. 1 42' E. 173.72 m. to point 1, point of beginning, "Containing an area of 6.7540 hectares. "Points 1,2,6 and 7, B.L.; points 3,4 and 5, stakes; points 4, 5 and 6 on bank of Alangan River. "Bounded on the North, by property claimed by Maria Ambrosio; on the East, by Road; on the South, by Alangan River and property claimed by Maxima de la Cruz; and on the West, by property claimed by Jose del Rosario. "Bearing true. Declination 0 51' E. "Surveyed under authority of sections 12-22, Act No. 2874 and in accordance with existing regulations of the Bureau of Lands, by Mamerto Jacinto, public land surveyor, on July 8, 1927 and approved on February 25, 1931. ARTICLE II. That the improvements on the above described land consist of the following: Four (4) mango trees, fruit bearing: one hundred ten (110) hills of bamboo trees; one (1) tamarind and six (6) boga trees. ARTICLE III. That the assessed value of the land is P940 and the assessed value of the improvements is P860, as evidenced by tax declaration No. 3531 of the municipality of Limay, Bataan. ARTICLE IV. That for and in consideration of the sum of one thousand pesos (P1,000) Philippine currency, paid by the party of second part to the party of the first part, receipt whereof is hereby acknowledged, the party of the first part hereby encumbers and hypothecates, by way of mortgage, only the improvements described in Articles II and III hereof, of which improvements the party of the first part is the absolute owner. ARTICLE V. That the condition of said mortgage is such that if the party of the first part shall well and truly pay, or cause to paid to the party of the second part, his heirs, assigns, or executors, on or before the 16th day of November, 1936, or four and

one-half (4) years after date of the execution of this instrument, the aforesaid sum of one thousand pesos (P1,000) with interest at 12 per cent per annum, then said mortgage shall be and become null and void; otherwise the same shall be and shall remain in full force and effect, and subject to foreclosure in the manner and form provided by law for the amount due thereunder, with costs and also attorney's fees in the event of such foreclosure.lawphil.net ARTICLE VI. That the party of the first part shall pay all taxes and assessments which are or may become due on the above described land and improvements during the term of this agreement. ARTICLE VII. That within thirty (30) days after date of execution of this agreement, the party of the first part shall file a motion before the Court of First Instance at Balanga, Bataan, P. I., requesting cancellation of Homestead Certificate of Title No. 325 referred to in Article I hereof and the issuance, in lieu thereof, of a certificate of title under the provisions of Land Registration Act No. 496, as amended by Act 3901. ARTICLE III. It if further agreed that if upon the expiration of the period of time (4) years stipulated in this mortgage, the mortgagor should fail to redeem this mortgage, she would execute a deed of absolute sale of the property herein described for the same amount as this mortgage, including all unpaid interests at the rate of 12 per cent per annum, in favor of the mortgagee. ARTICLE IX. That in the event the contemplated motion under Article VII hereof is not approved by the Court, the foregoing contract of sale shall automatically become null and void, and the mortgage stipulated under Article IV and V shall remain in full force and effect. In testimony whereof, the parties hereto have hereunto set their hands the day and year first herein before written. (Sgd.) MARCIAL KASILAG (Sgd.) EMILIANA AMBROSIO Signed in the presence of: (Sgd.) ILLEGIBLE (Sgd.) GAVINO RODRIGUEZ.

PHILIPPINE ISLANDS } ss. BALANGA, BATAAN } ss. Before me this day personally appeared Emiliana Ambrosio without cedula by reason of her sex, to me known and known to me to be the person who signed the foregoing instrument, and acknowledged to me that she executed the same as her free and voluntary act and deed. I hereby certify that this instrument consists of three (3) pages including this page of the acknowledgment and that each page thereof is signed by the parties to the instrument and the witnesses in their presence and in the presence of each other, and that the land treated in this instrument consists of only one parcel. In witness whereof I have hereunto set my hand and affixed my notarial seal, this 16th day of May, 1932. (Sgd.) NICOLAS NAVARRO Notary Public My commission expires December 31, 1933. Doc. No. 178 Page 36 of my register Book No. IV

The same view prevails in the Anglo-American law, as condensed in the following words: One year after the execution of the aforequoted deed, that is, in 1933, it came to pass that Emiliana Ambrosio was unable to pay the stipulated interests as well as the tax on the land and its improvements. For this reason, she and the petitioner entered into another verbal contract whereby she conveyed to the latter the possession of the land on condition that the latter would not collect the interest on the loan, would attend to the payment of the land tax, would benefit by the fruits of the land, and would introduce improvements thereon. By virtue of this verbal contract, the petitioner entered upon the possession of the land, gathered the products thereof, did not collect the interest on the loan, introduced improvements upon the land valued at P5,000, according to him and on May 22, 1934 the tax declaration was transferred in his name and on March 6, 1936 the assessed value of the land was increased from P1,020 to P2,180. After an analysis of the conditions of Exhibit "1" the Court of Appeals came to the conclusion and so held that the contract entered into by and between the parties, set out in the said public deed, was one of absolute purchase and sale of the land and its improvements. And upon this ruling it held null and void and without legal effect the entire Exhibit 1 as well as the subsequent verbal contract entered into between the parties, ordering, however, the respondents to pay to the petitioner, jointly and severally, the loan of P1,000 with legal interest at 6 per cent per annum from the date of the decision. In this first assignment of error the petitioner contends that the Court of Appeals violated the law in holding that Exhibit 1 is an absolute deed of sale of the land and its improvements and that it is void and without any legal effect. The cardinal rule in the interpretation of contracts is to the effect that the intention of the contracting parties should always prevail because their will has the force of law between them. Article 1281 of the Civil Code consecrates this rule and provides, that if the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal sense of its stipulations shall be followed; and if the words appear to be contrary to the evident intention of the contracting parties, the intention shall prevail. The contract set out in Exhibit 1 should be interpreted in accordance with these rules. As the terms thereof are clear and leave no room for doubt, it should be interpreted according to the literal meaning of its clauses. The words used by the contracting parties in Exhibit 1 clearly show that they intended to enter into the principal contract of loan in the amount of P1,000, with interest at 12 per cent per annum, and into the accessory contract of mortgage of the improvements on the land acquired as homestead, the parties having moreover, agreed upon the pacts and conditions stated in the deed. In other words, the parties entered into a contract of mortgage of the improvements on the land acquired as homestead, to secure the payment of the indebtedness for P1,000 and the stipulated interest thereon. In clause V the parties stipulated that Emiliana Ambrosio was to pay, within four and a half years, or until November 16, 1936, the debt with interest thereon, in which event the mortgage would not have any effect; in clause VI the parties agreed that the tax on the land and its improvements, during the existence of the mortgage, should be paid by the owner of the land; in clause VII it was covenanted that within thirty days from the date of the contract, the owner of the land would file a motion in the Court of First Instance of Bataan asking that certificate of title No. 325 be cancelled and that in lieu thereof another be issued under the provisions of the Land Registration Act No. 496, as amended by Act No. 3901; in clause VIII the parties agreed that should Emiliana Ambrosio fail to redeem the mortgage within the stipulated period of four years and a half, she would execute an absolute deed of sale of the land in favor of the mortgagee, the petitioner, for the same amount of the loan of P1,000 including unpaid interest; and in clause IX it was stipulated that in case the motion to be presented under clause VII should be disapproved by the Court of First Instance of Bataan, the contract of sale would automatically become void and the mortgage would subsist in all its force. Another fundamental rule in the interpretation of contracts, not less important than those indicated, is to the effect that the terms, clauses and conditions contrary to law, morals and public order should be separated from the valid and legal contract and when such separation can be made because they are independent of the valid contract which expresses the will of the contracting parties. Manresa, commenting on article 1255 of the Civil Code and stating the rule of separation just mentioned, gives his views as follows: On the supposition that the various pacts, clauses or conditions are valid, no difficulty is presented; but should they be void, the question is as to what extent they may produce the nullity of the principal obligation. Under the view that such features of the obligation are added to it and do not go to its essence, a criterion based upon the stability of juridical relations should tend to consider the nullity as confined to the clause or pact suffering therefrom, except in case where the latter, by an established connection or by manifest intention of the parties, is inseparable from the principal obligation, and is a condition, juridically speaking, of that the nullity of which it would also occasion. (Manresa, Commentaries on the Civil Code, Volume 8, p. 575.) Where an agreement founded on a legal consideration contains several promises, or a promise to do several things, and a part only of the things to be done are illegal, the promises which can be separated, or the promise, so far as it can be separated, from the illegality, may be valid. The rule is that a lawful promise made for a lawful consideration is not invalid merely because an unlawful promise was made at the same time and for the same consideration, and this rule applies, although the invalidity is due to violation of a statutory provision, unless the statute expressly or by necessary implication declares the entire contract void. . . . (13 C. J., par. 470, p. 512; New York Cent. etc. R. Co. v. Gray, 239 U.S., 583; 60 Law ed., 451; U.S. v. Mora, 97 U.S., 413, 24 Law. ed., 1017; U.S. v. Hodson, 10 Wall, 395; 19 Law ed. 937; Gelpcke v. Dubuque, 1 Wall. 175, 17 Law ed., 520; U.S. v. Bradly, 10 Pet. 343, 9 Law. ed., 448; Borland v. Prindle, 144 Fed 713; Western Union Tel. Co. v. Kansas Pac. R. Co., 4 Fed., 284; Northern Pac. R. Co. v. U.S., 15 Ct. Cl., 428.) Addressing ourselves now to the contract entered into by the parties, set out in Exhibit 1, we stated that the principal contract is that of loan and the accessory that of mortgage of the improvements upon the land acquired as a homestead. There is no question that the first of these contract is valid as it is not against the law. The second, or the mortgage of the improvements, is expressly authorized by section 116 of Act No. 2874, as amended by section 23 of Act No. 3517, reading: SEC. 116. Except in favor of the Government or any of its branches, units or institutions, or legally constituted banking corporations, lands acquired under the free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of issuance of the patent or grant, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period; but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations. It will be recalled that by clause VIII of Exhibit 1 the parties agreed that should Emiliana Ambrosio fail to redeem the mortgage within the stipulated period of four and a half years, by paying the loan together with interest, she would execute in favor of the petitioner an absolute deed of sale of the land for P1,000, including the interest stipulated and owing. The stipulation was verbally modified by the same parties after the expiration of one year, in the sense that the petitioner would take possession of the land and would benefit by the fruits thereof on condition that he would condone the payment of interest upon the loan and he would attend to the payment of the land tax. These pacts made by the parties independently were calculated to alter the mortgage a contract clearly entered into, converting the latter into a contract of antichresis. (Article 1881 of the Civil Code.) The contract of antichresis, being a real encumbrance burdening the land, is illegal and void because it is legal and valid. The foregoing considerations bring us to the conclusion that the first assignment of error is well-founded and that error was committed in holding that the contract entered into between the parties was one of absolute sale of the land and its improvements and that Exhibit 1 is null and void. In the second assignment of error the petitioner contends that the Court of Appeals erred in holding that he is guilty of violating the Public Land Act because he entered into the contract, Exhibit 1. The assigned error is vague and not specific. If it attempts to show that the said document is valid in its entirety, it is not wellfounded because we have already said that certain pacts thereof are illegal because they are prohibited by section 116 of Act No. 2874, as amended. In the third assignment of error the petitioner insists that his testimony, as to the verbal agreement entered into between him and Emiliana Ambrosio, should have been accepted by the Court of Appeals; and in the fourth and last assignment of error the same petitioner contends that the Court of Appeals erred in holding that he acted in bad faith in taking possession of the land and in taking advantage of the fruits thereof, resulting in the denial of his right to be reimbursed for the value of the improvements introduced by him. We have seen that subsequent to the execution of the contract, Exhibit 1, the parties entered into another verbal contract whereby the petitioner was authorized to take possession of the land, to receive the fruits thereof and to introduce improvements thereon, provided that he would renounce the payment of stipulated interest and he would assume payment of the land tax. The possession by the petitioner and his receipt of the fruits of the land, considered as integral elements of the contract of antichresis, are illegal and void agreements because, as already stated, the contract of antichresis is a lien and such is expressly prohibited by section 116 of Act No. 2874, as amended. The Court of Appeals held that the petitioner acted in bad faith in taking possession of the land because he knew that the contract he made with Emiliana Ambrosio was an

absolute deed of sale and, further, that the latter could not sell the land because it is prohibited by section 116. The Civil Code does not expressly define what is meant by bad faith, but section 433 provides that "Every person who is unaware of any flaw in his title, or in the manner of its acquisition, by which it is invalidated, shall be deemed a possessor in good faith"; and provides further, that "Possessors aware of such flaw are deemed possessors in bad faith". Article 1950 of the same Code, covered by Chapter II relative to prescription of ownership and other real rights, provides, in turn, that "Good faith on the part of the possessor consists in his belief that the person from whom he received the thing was the owner of the same, and could transmit the title thereto." We do not have before us a case of prescription of ownership, hence, the last article is not squarely in point. In resume, it may be stated that a person is deemed a possessor in bad faith when he knows that there is a flaw in his title or in the manner of its acquisition, by which it is invalidated. Borrowing the language of Article 433, the question to be answered is whether the petitioner should be deemed a possessor in good faith because he was unaware of any flaw in his title or in the manner of its acquisition by which it is invalidated. It will be noted that ignorance of the flaw is the keynote of the rule. From the facts found established by the Court of Appeals we can neither deduce nor presume that the petitioner was aware of a flaw in his title or in the manner of its acquisition, aside from the prohibition contained in section 116. This being the case, the question is whether good faith may be premised upon ignorance of the laws. Manresa, commenting on article 434 in connection with the preceding article, sustains the affirmative. He says: "We do not believe that in real life there are not many cases of good faith founded upon an error of law. When the acquisition appears in a public document, the capacity of the parties has already been passed upon by competent authority, and even established by appeals taken from final judgments and administrative remedies against the qualification of registrars, and the possibility of error is remote under such circumstances; but, unfortunately, private documents and even verbal agreements far exceed public documents in number, and while no one should be ignorant of the law, the truth is that even we who are called upon to know and apply it fall into error not infrequently. However, a clear, manifest, and truly unexcusable ignorance is one thing, to which undoubtedly refers article 2, and another and different thing is possible and excusable error arising from complex legal principles and from the interpretation of conflicting doctrines. But even ignorance of the law may be based upon an error of fact, or better still, ignorance of a fact is possible as to the capacity to transmit and as to the intervention of certain persons, compliance with certain formalities and appreciation of certain acts, and an error of law is possible in the interpretation of doubtful doctrines. (Manresa, Commentaries on the Spanish Civil Code. Volume IV, pp. 100, 101 and 102.) According to this author, gross and inexcusable ignorance of law may not be the basis of good faith, but possible, excusable ignorance may be such basis. It is a fact that the petitioner is not conversant with the laws because he is not a lawyer. In accepting the mortgage of the improvements he proceeded on the well-grounded belief that he was not violating the prohibition regarding the alienation of the land. In taking possession thereof and in consenting to receive its fruits, he did not know, as clearly as a jurist does, that the possession and enjoyment of the fruits are attributes of the contract of antichresis and that the latter, as a lien, was prohibited by section 116. These considerations again bring us to the conclusion that, as to the petitioner, his ignorance of the provisions of section 116 is excusable and may, therefore, be the basis of his good faith. We do not give much importance to the change of the tax declaration, which consisted in making the petitioner appear as the owner of the land, because such an act may only be considered as a sequel to the change of possession and enjoyment of the fruits by the petitioner, to about which we have stated that the petitioner's ignorance of the law is possible and excusable. We, therefore, hold that the petitioner acted in good faith in taking possession of the land and enjoying its fruits. The petitioner being a possessor in good faith within the meaning of article 433 of the Civil Code and having introduced the improvements upon the land as such, the provisions of article 361 of the same Code are applicable; wherefore, the respondents are entitled to have the improvements and plants upon indemnifying the petitioner the value thereof which we fix at P3,000, as appraised by the trial court; or the respondents may elect to compel the petitioner to have the land by paying its market value to be fixed by the court of origin. The respondents also prayed in their complaint that the petitioner be compelled to pay them the sum of P650, being the approximate value of the fruits obtained by the petitioner from the land. The Court of Appeals affirmed the judgment of the trial court denying the claim or indemnity for damages, being of the same opinion as the trial court that the respondents may elect to compel the petitioner to have the land. The Court of Appeals affirmed the judgment of the trial court that the respondents

have not established such damages. Under the verbal contract between the petitioner and the deceased Emiliana Ambrosio, during the latter's lifetime, the former would take possession of the land and would receive the fruits of the mortgaged improvements on condition that he would no longer collect the stipulated interest and that he would attend to the payment of the land tax. This agreement, at bottom, is tantamount to the stipulation that the petitioner should apply the value of the fruits of the land to the payment of stipulated interest on the loan of P1,000 which is, in turn, another of the elements characterizing the contract of antichresis under article 1881 of the Civil Code. It was not possible for the parties to stipulate further that the value of the fruits be also applied to the payment of the capital, because the truth was that nothing remained after paying the interest at 12% per annum. This interest, at the rate fixed, amounted to P120 per annum, whereas the market value of the fruits obtainable from the land hardly reached said amount in view of the fact that the assessed value of said improvements was, according to the decision, P860. To this should be added the fact that, under the verbal agreement, from the value of the fruits had to be taken a certain amount to pay the annual land tax. We mention these data here to show that the petitioner is also not bound to render an accounting of the value of the fruits of the mortgaged improvements for the reason stated that said value hardly covers the interest earned by the secured indebtednes. For all the foregoing considerations, the appealed decision is reversed, and we hereby adjudge: (1) that the contract of mortgage of the improvements, set out in Exhibit 1, is valid and binding; (2) that the contract of antichresis agreed upon verbally by the parties is a real incumbrance which burdens the land and, as such, is a null and without effect; (3) that the petitioner is a possessor in good faith; (4) that the respondents may elect to have the improvements introduced by the petitioner by paying the latter the value thereof, P3,000, or to compel the petitioner to buy and have the land where the improvements or plants are found, by paying them its market value to be filed by the court of origin, upon hearing the parties; (5) that the respondents have a right to the possession of the land and to enjoy the mortgaged improvements; and (6) that the respondents may redeem the mortgage of the improvements by paying to the petitioner within three months the amount of P1,000, without interest, as that stipulated is set off by the value of the fruits of the mortgaged improvements which petitioner received, and in default thereof the petitioner may ask for the public sale of said improvements for the purpose of applying the proceeds thereof to the payment of his said credit. Without special pronouncement as to the costs in all instances. So ordered. Diaz, J., concur. March 27, 1971 G.R. No. L-22519 VICENTE GOTAMCO HERMANOS, petitioner, vs. IRMA ROHDE SHOTWELL, assisted by her husband, ANSELMO M. SHOTWELL, respondents. Dizon, J.: The case at bar was commenced in the Court of First Instance of Manila by lrma Rohde Shotwell, assisted by her husband, ANSELMO M. Shotwell, against the partnership Vicente Gotamco Hermanos hereinafter referred to simply as Gotamco for the final liquidation and payment of the unpaid balance of a pre-war loan, secured by mortgage, granted to the latter wayback in 1926 by William J. Rohde, plaintiffs father. In its answer Gotamco Hermanos relied mainly on the defense of (a) payment, and (b) on the claim that whatever reservation was made by its creditor regarding the revaluation of payments made was subject to the condition that there should be a law enacted governing revaluation of payments of pre-war monetary obligations with Japanese military notes, and that no such legislation has ever been enacted. After trial upon the issue thus joined, the court rendered judgment as follows: WHEREFORE, judgment is rendered in favor of plaintiff and against the defendant ordering the latter to pay plaintiffs the sum of P7,879.33, unpaid balance as of April 30, 1945 with interest at 8% per annum from May 1, 1945 until paid, payable monthly with penalty of 1% per month on the unpaid accrued interest and costs. Gotamco appealed to the Court of Appeals where, in due time, the appealed decision modifying that of the trial court was rendered . Its dispositive part is of the following tenor: WHEREFORE, the appealed judgment is modified and defendant is hereby ordered to pay plaintiffs the sum of P42,474.45 with interests at 8% per annum from May 1, 1946 until full payment, and the costs. Defendants counterclaim is dismissed.

The Court of Appeals made the following findings of fact: The loan was originally for P85,000.00 bearing interest at 9% per annum and was secured by a mortgage on real estate situated in Manila. Initially, the loan was payable within three years from February 24, 1926, but the period was several times extended at the request of the debtor, the last extension being for two years from February 24, 1942. The rate of interest was reduced to 8% per year from 1932. Before the last war, only the interests were paid, quarterly, up to the third quarter of 1941 (Exhs. 0 to J). On April 28, 1942, upon written request of defendant on the ground that it then had a very low income, temporary reduction of the interests by 50% was granted (Exh. F). Accordingly, payments were made and accepted thereafter from May 11, 1942, which were expressly applied to cover 50% of the stipulated interests only, which were computed quarterly up to and including the last quarter of 1942 at P850.00 per quarter (Exhs. E to X for plaintiffs, also marked Exhs. 2 to 15 defendant). On October 2, 1943 defendant delivered the amount of P1,800.00 in Japanese war notes as payment of the interests for three quarters (January to September, 1943), which was received for the creditor by plaintiff Irma Rohde Shotwell and her husband Anselmo Shotwell. Irma signed on behalf of the creditor the covering receipt (Exh. Y) dated October 2, 1943, which was also presented in evidence as Exh. 16 by defendant. After the payment appearing on Exh. Y (October 2, 1943) the following amounts only, were admittedly paid in 1944, also in Japanese war notes, to wit: Date of Payment Amount Coveting Receipt January 3, 1944 P 5,000.0 Exhibit Z March 14, 1944 3,000.00 Exhibit AA April 17, 1944 5,000.00 Exhibit BB May 19, 1944 17,000.00 Exhibit CC TOTAL P30,000.00 In 1945 and 1946 plaintiffs admittedly received from defendant the following payments in Philippine currency: Date of Payment Amount Covering Receipt June 25, 1945 P 1,000.00 Exhibit DD June 27, 1945 2,000.00 Exhibit EE September 15, 1945 10,000.00 Exhibit FF April 24, 1946 20,000.00 Exhibit GG April 30, 1946 23,120.00 Included in Exhibit HH The mortgagee, William J. Rohde, died on July 16, 1945 leaving as survivors his wife, Isabel Salgado de Rohde, and their only child, Irma Rohde Shotwell. The widow died in 1947, survived by the only daughter, herein plaintiff Irma. On April 30, 1946 a deed entitled Release of Mortgage (Exhibit HH for plaintiff, Exh. 1 for defendant) was executed by Isabel Salgado de Rohde and Immaculada Rohde, (the same plaintiff Irma), stating the receipt of P42,000.00 on account of the principal and P1,120.00 on account of the interests from January 1, 1946 to April 30, 1946. There is no question that the sum

of P43,120.00 mentioned in the said release of mortgage consisted of the P20,000.00 paid on April 24, 1946 (Exh. GG), and the P23,120.00 paid on April 30, 1946. This was the last payment. As there appeared no question as to the original amount of the mortgage debt and the total amount actually paid including payment of the interests due up to September 30, 1943 the Court of Appeals summed up the controverted points submitted for its resolution as follows: (a) Defendant contends that the interests from October 1, 1943 to December 31, 1945 were totally condoned by the creditor; while plaintiffs contend that there has been no such total condonation and that, on the contrary, the 50% reduction ceased from October 1, 1943; (b) Defendant contends that the 1944 payments totalling P30,000.00 in Japanese war notes were entirely applied to the principal, at par with the Philippine Peso; while plaintiffs contend that the application of the payments to interests and to principal was held in abeyance, because they were accepted subject to revaluation to be made after the war, to be then applied first to interest and then to the principal; (c) Defendant contends that plaintiffs right to revaluation of the 1944 payments was dependent upon the enactment of a law which would provide for such revaluation, but no such law has been enacted and that the receipts and the release of mortgage (Exh. HH: Exh. 1) contain no reservation for revaluation such that plaintiffs are precluded from claiming such revaluation as well as the interests; while plaintiffs contend that their right to the revaluation of the 1944 payments start from the agreement between the parties, as well as from the readjustment clause (Sec. 8, Art. XI) of the Constitution of the war time Republic of the Philippines, and their right to unsatisfied interests emanates from the loan contract, and that the receipts and the release of mortgage did not, and do not, bar the revaluation of the 1944 payments and collection of the unsatisfied, interests, which were precisely made and intended to be in accordance with said agreement, as in fact they left the door open for, and contemplated, further readjustment and final settlement of the obligation. The first and second points are obviously intimately related in the sense that if it is true that the interests on the balance of the mortgage debt, from October 1, 1943 to December 31, 1945, were totally condoned by the creditor, it would necessarily follow that the 1944 payments made by Gotamco totalling P30,000.00 in Japanese war notes must be deemed to have been entirely applied to the principal obligation. In reality, therefore, the following are the question decisive of the whole case: (a) the alleged total condonation of the interests, and (b) whether the revaluation of the 1944 payments is in order in the light of the facts of the case. Petitioners position in relation to the above questions is that the interests from October 1, 1943 to December 31, 1945 were totally condoned; that the 1944 payments made in Japanese war notes were not subject to revaluation; that their total amount together with the post-liberation payments should be applied to the balance due on the mortgage debt; that the result would be the full satisfaction of its obligation. On the other hand, respondents contention is that there was no condonation of the interests due from October 1, 1943 to December 31, 1945; that the 1944 payments were not and should not entirely be applied to the principal obligation because they were intended for both such principal obligation and the interests due thereon, without any specific application to either, by reason of the agreement between the parties to revaluate them after the war; that only after such revaluation could any specific portion of the payments aforesaid be applied to interests and to the principal obligation; that by doing so the result would be that petitioners obligation has not been fully satisfied. On the question of total condonation of interests the trial courts finding against petitioner was affirmed by the Court of Appeals who also found and declared that there had been no such total condonation of interests at all. While the findings of fact of the Court of Appeals are not reviewable on appeal, we have nevertheless carefully considered the opposing views expounded by the parties in their briefs in relation to this particular matter, in view of its decisive influence upon the resolution of this appeal. After doing so, we feel satisfied that both courts were right. Petitioners case rests entirely on the testimony of Go Lang, its general manager, which the Court of Appeals found to be unworthy of credence. The following portion of the appealed decision fully justifies said courts opinion:

At first Go Lang testified that the total condonation was granted in writing, and when pressed for the writing he pointed to Exhibit F; but, when he realized that Exhibit F dealt only with 50% reduction and did not even mention total condonation, he changed his testimony saying that total condonation was verbally requested by the debtor and verbally granted by the creditor also in 1942 in the early part of the Japanese occupation, effective October, 1943 to December, 1945. This is incredible. Lending additional support to the Court of Appeals decision on the point under consideration are the following facts: (a) It is not disputed that between the mortgage William J. Rohde and the respondent partnership, friendly relations existed before the war and up to the formers death. This notwithstanding, respondents request for a partial reduction of the rate o f interests as well as the mortgagees assent thereto were reduced into writing. If subseque ntly there was, as respondent claims, a total condonation of interests, it is but logical to expect that the parties would have reduced their agreement to that effect also in writing. And yet, as already stated before, all that respondent can rely upon now is the biased and untrustworthy testimony of its general manager. (b) The 50% reduction of the stipulated rate of interests was due, according to respondents own letter of April 28, 1942 (Ex h. A), to its depleted income and poor financial condition at that time, and the reduction asked and granted was intended to be temporary. In relation to these factors there is ample evidence in the record, as found by the Court of Appeals, that prior to October 1943 and thereafter, respondents business and income had improved to such an extent that it was able to pay and liquidate in full a good portion of its pre-war obligations to the tune of hundreds of thousands of pesos. Consequently, We can not but agree with said court when it said that while the 50% reduction of the rate of interests was understandable on April 28, 1942, there was obviously no reason neither for its indefinite continuation nor for a total condonation of the interests from October 1943 and thereafter. What would seem to be logical instead is the resumption of the full stipulated rate of interests. Indeed, it appears in this connection that when the payment of P1,800.00 covered by the receipt Exhibit Y was made on October 2, 1943 for the interests due from January 1 to September 30 of the year 1943, Attorney Shotwell to whom the matter of accepting the payment was referred by his parents-in-law, Mr. & Mrs. Rohde brought up the unfairness of petitioners paying its obligation in Japanese war notes and at a reduced rate of interest, the ever declining value of said war notes being well-known to everybody at that time. Shotwell the Court of Appeals found accepted the payment with reluctance and only with the understanding that it was to be the last payment at par and at the reduced rate of interest, and that subsequent payments would be subject to revaluation after the war. Accordingly, the Court of Appeals further found in this connection that the P5,000.00 evidenced by Exhibit 2 paid on January 15. 1944 and the subsequent amounts of P3,000.00 paid on March 14, 1944 (Exh. AA), P5,000.00 paid on April 17, 1944 (Exh. BB) and P17,000.00 paid on May 19, 1944 (Exh. CC) were all made and accepted under the understanding that the reduction of the rate of interests had ceased; that, instead, the originally stipulated rate of 8% per year was to apply from. October 1, 1943, and that the Japanese war notes received were to be revaluated after the war. This, according to the court. was the reason why the aforesaid payments made in the year 1944 were not, as shown by the above-mentioned receipts, prepared by respondents own accountant, the subject of specific application to either interests or principal something possible to do only after revaluation of the amounts paid. But petitioner advances the contention that respondents right to a revaluation of the 1944 payments was dependent upon the enactment of a law providing for such revaluation, and that no such law having thus far been enacted and inasmuch as the receipts evidencing said payments as well as the release of mortgage contained no reservation for such revaluation, the respondent is now precluded from claiming a right to it. It is respondents contention in this regard, on the other hand, tha t the right to the revaluation of the 1944 payments is based upon the agreement between the parties as well upon the readjustment clause (Section 8, Article XI) of the war time constitution of the Republic of the Philippines; and that their right to unpaid interests is based on the contract of loan itself. The issue of fact thus arising was the subject of evidence, both testimonial and documentary presented before the trial court, bearing principally upon the facts and circumstances surrounding the payments aforesaid as well as those made after liberation. The documentary evidence consisted mainly of the corresponding receipts and the document Exhibit HH releasing the mortgage. On the basis of all such evidence, the Court of Appeals declared that the revaluation of the payments already mentioned as well as respondents right to the unpaid interests was not intended by the parties to depend upon the enactment of a law providing for such revaluation. We quote hereunder with approval the considerations made by said court as well as its conclusion upon this issue:

Was the right to revaluate the 1944 payments dependent upon the enactment of a law which would provide therefor? In thus contending, defendant argued that to this effect is the wording of the post liberation receipts and release of mortgage. In maintaining the contrary, plaintiffs alleged that the said writings do not clearly express the true intention of the parties, which clearly appears considering the circumstances surrounding their execution. To this end, evidence was properly admitted. It is well settled that in construing a writing, particularly a written agreement, the reason behind and the circumstances surrounding its execution are of paramount importance to place the interpreter in the situation of the parties concerned at the time the writing was executed. This brings us to a review of the facts and circumstances attendant upon the post liberation receipts and the release of mortgage. At the time, certain measures were under consideration by the Government to solve the problem brought about by the payments in Japanese war notes during the Japanese occupation of pre-war obligations. Prominent among them was the Ballantyne proposal. It was submitted to Congress by the President of the Philippines with a message and this fact appeared in the Manila newspapers of June 21, 1945 (Exhs. UU, VV and WW), a few days before the first liberation payment (Exhibit DD). The Ballantyne Memorandum (Exhibit BB) advocated for the revaluation of the Japanese war notes and proposed the condonation of the interests during the Japanese occupation. It also contained a schedule of values of the said war notes in terms of Philippine Peso during different periods of the Japanese occupation. The evidence discloses that, as it was but natural, the Ballantyne plan was talked about and taken into account by Shotwell and Go Lang when the first post-liberation payment was made on June 25, 1945, as well as during the other post-liberation payments and when the release of mortgage was executed. As above stated, the interests from October 1, 1943 to December 31, 1945, had not been condoned, and the reduction of the interests was terminated, while the stipulated rate of 8% per year was to apply from October 1, 1943; the Japanese war notes received in 1944 were accepted under the agreement that they were subject to be revaluated after the war, and, in consonance therewith, their application was held in abeyance, to be made upon the revaluation. Under the Constitution, promulgated in 1943 of the war time Republic of the Philippines (sec. 3, Art. VIII) which the parties also had in mind in connection with their agreement to revaluate, the creditor would be entitled to the revaluation of the 1944 payments. After the liberation, the Rohdes were financially in no better position than defendant such that they could forego the revaluation of the 1944 payments and the unsatisfied interests. The long standing friendly relations and the actual confidence continued between the Rohdes and the Gotamcos. While the Rohdes wanted to have their money, already in Philippine currency, defendant was interested in the release of the mortgage to use the property for bigger loans for defendants business. The Ballantyne Proposal mentioned above, then pending consideration by the Government, was more or less in line with the revaluation agreement between the parties herein; and Go Lang, taking the one therefrom, believed that there should be no interests from October, 1943 to December, 1945, but was agreeable that there should be interests from January, 1946, while Shotwell maintained that, notwithstanding the revaluation, the interests for that period should also be paid. In this situation, the post liberation receipts and the release of mortgage (Exhibit HH) were issued. Now, is it logical that the parties intended to make the revaluation of the 1944 payments and the collection of the aforesaid interests contingent upon the enactment of a law which would grant such revaluation and interests? On the part of the creditor, the affirmative, in case no such law would be enacted, would amount to a waiver or abandonment of the right to the revaluation to which he was entitled by virtue of the agreement had since 1944 and also under the readjustment provision of the Constitution of the war time Republic of the Philippines, and of the right to the aforesaid interests to which the creditor was entitled by virtue of the contract of loan. That the creditor had so intended is difficult to believe. It does not make sense to say that the creditor intended to jeopardize the right to the revaluation and the right to the aforesaid interests, which he already had irrespective of any new law, so as to lose them in case no such law would be enacted. On the part of defendant debtor, there was no justification for it to demand or require the creditor to agree to such waiver. The more so, taking into consideration the old standing friendly relations and mutual confidence which still continued between the Rohdes and the Gotamcos at that time. Construction which would amount to impairment or loss of right is not favored; conservation and preservation, not waiver, abandonment or forfeiture of a right, is the rule. The release of mortgage, Exhibit HH, as aptly stated by the trial court, merely lifted the mortgage lien, and was not intended to extinguish the obligation; this was left subsisting for whatever would be the balance upon final liquidation, although without any more collateral to secure the same, as the creditor relied upon the solvency of the defendant.

There is logic and verity in plaintiffs version and Shotwells testimony that the post liberation receipts and the release of mortgage were not intended to make the revaluation of the 1944 payments and the collection of the interests from October, 1943 to December, 1945, dependent upon the enactment of a law or upon the adoption of the Ballantyne proposal by the legislature; and that what the parties had in mind was that they should wait for the final action of the Government on the matter inasmuch as it would provide for a way, such as with respect to the rates or equivalent of the Japanese war notes in terms of Philippine Peso, to carry out the revaluation, and a guide for them to determine as to what they should do with the interests. This is not incompatible with, and is not excluded by, the reservation in general terms, contained in the release of mortgage, of the rights or privileges which may be confer red or granted by future legislation, executive order or proclamation in favor of creditors with respect to payments of pre-war obligations made during the Japanese occupation, and that was the way the parties understood such reservation. That some of the post liberation receipts and the release of mortgage were prepared by Shotwell is of no importance, there being no showing purposely they were made not to clearly express the true intent of the parties. On the contrary, as Shotwell declared, they were deemed to be clear enough at that time as the reason, and motive behind, and the circumstances surrounding, their execution, which made the parties intent plain to them, were still fresh and undisputed in their minds. On the other hand, the testimony of Go Lang, defendants lone witness on the matter, leaves much to be desired in point of credibility. His evasive and inconsistent answers and his feigned incredible ignorance of the existence of the Ballantyne proposal, which was given general publicity in the Manila newspapers and has become of common knowledge and was of paramount importance to him being partner and general manager of defendant which paid in Japanese war notes pre-war obligations in big amounts, detract much from his veracity. Therefore, the fact that no law has been enacted on the matter has not affected the right of the creditor herein to the revaluation of the 1944 payments and to the collection of the unsatisfied interests from October, 1943. We are unable to accept petitioners contention that the above finding and conclusion are based on a misapprehension and misinterpretation of the relevant documents and circumstances prevailing at the time the payments were made. All the receipts covering the 1944 as well as the post liberation payments were qualified, the qualification being expressed therein in substantially the same way. Exhibit DD of April 17, 1944 acknowledges the receipt of the sum of P5,000.00 a cuenta del import e del credito impotetario in favor of William J. Rohde. The other receipts covering 1944 payments (Exhs. Z, AA and C) do not state that the payments were to be applied entirely to the principal obligation. To the contrary, they contained the significant reference to the amount of the principal as amounting to P85.000.00, the same not having been reduced at any time in anyone of said receipts, which would have been the case if the payment evidenced by Exhibit DD and the others that followed were entirely applied to the satisfaction of the principal obligation, We agree with both the trial court and the Court of Appeals that these receipts viewed together show that the intention of the parties was to apply the payments made to the account of the mortgage credit owing from Gotamco to William J. Rohde, which mortgage credit consisted, of course, of the unpaid balance of the loan together with the unpaid interests. The receipts covering post-liberation payments were also qualified. So was the Deed of Release of Mortgage. Exhibits DD, EE, FF and GG as well as Exhibit HH show no unqualified application of the payments respectively evidenced by each of them to the principal obligation. Instead, they show that they were made and accepted subject to a final re-computation and final liquidation. It is obvious from the above documents, however, that they are not entirely as clear as they could have been made. This is the reason why, in our opinion, it was justified for the Court of Appeals to determine their real meaning or the intent of the parties in the light of the attendant facts and circumstances. After doing so, the court arrived at the conclusion and held that the agreement to revaluate the payments in question was not intended to be subject to the enactment of any particular law on revaluation of the Japanese military notes in relation to the peso of the Philippine genuine currency, nor upon the formal adoption of the Ballantyne Schedule by the Legislative Branch of the government. In view of all the facts disclosed by the record, it is our opinion that the Court of Appeals did not err in applying the Ballantyne Scale in re-evaluating the payments made by Gotamco, said scale having been applied also by this Court in several cases even in the absence of evidence concerning any definite agreement between the parties as to how and at what rate the revaluation of payments should be made.

Petitioner Gotamco also invokes the provisions of Article 1110 of the old Civil Code in support of its contention that respondents are now barred from claiming the questioned interests due to the absence of a reservation with respect thereto in the pertinent receipts and in the release of mortgage. We find this contention, as did the Court of Appeals, to be untenable, for the reason that the legal provision relied upon applies only to a case where the whole amount of the obligation is deemed cancelled or paid with the amount receipted for. That situation does not obtain in the present case where the receipts, including the release of mortgage Exhibit HH, show that the amounts receipted for did not definitely close Gotamcos account with its creditor but rather let it open for further re computation and liquidation. Lastly, petitioner claims that the Court of Appeals erred in not ruling that its claim for attorneys fees is meritorious. In view of what has been stated heretofore, it is not necessary to deal with this point in detail. WHEREFORE, the appealed decision is hereby affirmed, with costs. Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur. G.R. No. 155634 August 16, 2004 REPUBLIC OF THE PHILIPPINES, Represented by the SOCIAL SECURITY SYSTEM, petitioner, vs. JERRY V. DAVID, respondent. PANGANIBAN, J.: Under the terms of the subject Contract, "actual possession" cannot be equated with "actual occupancy." Inasmuch as the housing unit was physically occupied by parties other than those intended to be benefited by the housing program of the Social Security System, there was a clear violation of the Contract. Since respondent did not comply with his obligations, rescission is proper. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the October 9, 2002 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 61374. The appellate court disposed as follows: "WHEREFORE, the instant appeal is DENIED for lack of merit. The decision of the Regional Trial Court, Quezon City, Branch 105, in Civil Case No. Q-96-27031 is hereby AFFIRMED."3 The Facts The CA narrated the facts thus: "x x x [Respondent] Jerry V. David is an employee of the SSS, formerly assigned at its Membership (Backroom) Department. Pursuant to its Employees' Housing Loan Program, SSS awarded David a house and lot located at North Fairview, Quezon City. A Deed of Conditional Sale over the subject property was thereafter executed between the parties. "On reports that numerous violations have been committed by some of the housing awardees in connection with the conditions governing their sales, SSS conducted an investigation on the matter. The investigation revealed that in the case of [Respondent] David, he committed two (2) violations of his deed of conditional sale, to wit: (1) neither the [respondent] nor his immediate family resided and/or occupied the said housing unit, and (2) he allowed a certain Buenaventura Penus to possess and occupy the property. "As a consequence of these violations, SSS sent a letter to David formally revoking, terminating and/or rescinding the deed of conditional sale. However, the latter refused to vacate and surrender possession of the subject property, prompting SSS to

institute a complaint with the Quezon City RTC on March 28, 1996 revoking the deed of conditional sale and likewise praying for the issuance of a writ of possession in its favor. "During the pre-trial of the case, the court observed that while the complaint was captioned 'Petition for Recovery of Possession with [P]rayer for Issuance of a Writ of Possession,' an examination of its body shows that the prayer was actually for the rescission of the deed of conditional sale. For this reason, the court ordered the amendment of the complaint and in compliance thereto, [petitioner] submitted its amended complaint on March 19, 1997. "[Respondent] David denied the alleged violations of the deed of conditional sale, stating that Buenaventura Penus, alluded to by the [petitioner] as possessor-occupant of the subject property, was in fact a caretaker until and after the necessary renovations and modifications on the house were made. "In a [D]ecision dated July 1, 1998, the court a quo dismissed the complaint and adjudged the [petitioner] liable for costs. The dispositive portion of the trial court's decision reads: 'WHEREFORE, in the light of the foregoing, the Amended Complaint is dismissed, with costs against the plaintiff. 'SO ORDERED.' "In dismissing the complaint, the court ruled that the [petitioner] failed to prove that the [respondent] purchased the subject property for the use and benefit of another undisclosed party and not for his exclusive use, or that the defendant sold, assigned, encumbered, mortgaged, leased, subleased or in any manner altered or disposed of the subject property or his rights thereto at any other time. In arriving at its [D]ecision, the lower court considered the testimony of the [respondent] that when the subject property was delivered to him on October 23, 1992, the unit was not habitable so he had to make a few constructions thereon. He secured the services of his cousin, Buenaventura Penus, to be the caretaker while construction on the house was going on. With this, the court concluded that possession, as a condition of the deed of sale between the parties, was sufficiently satisfied. "Aggrieved, [Petitioner] SSS brought [an] appeal [to the CA], arguing that the court a quo erred in holding that [respondent] did not violate the terms and conditions of the Deed of Conditional Sale and in consequently dismissing the case."4 Ruling of the Court of Appeals Affirming the trial court, the CA ruled that while other persons had been found occupying the subject property, no proof was adduced by petitioner to prove that they had taken possession of it on their own behalf and not merely as respondent's caretakers. The appellate court added that because of the squalid condition of the property when it was delivered, respondent had to make improvements thereon as well as ask Penus, and later on Oden Domingo, to stay there as caretakers. Through his caretakers, respondent was deemed to have occupied and possessed the property as required by the Deed of Sale between him and petitioner. The CA concluded that the property had clearly been subject to respondent's will, a fact equivalent to possession under Article 5315 of the Civil Code. Hence, this Petition.6 Issues In its Memorandum, petitioner raises this sole issue: "whether the Court of Appeals committed reversible error in affirming the Decision of the trial court holding that respondent did not violate the terms and conditions of the Deed of Conditional Sale."7

Petitioner avers that respondent violated the terms and conditions of the Deed of Conditional Sale, when he failed to "actually occupy and possess the property at all times"8 and allowed other persons to do so.9 It argues that contrary to the rulings of the trial and the appellate courts, the Deed of Conditional Sale required "actual physical possession at all times," not just simple possession. It contends that the material occupation of the property by other persons ran counter to the objective of the Social Security System (SSS) housing program to restrict the use and enjoyment of the housing units to SSS employees and their immediate families only. Petitioner likewise submits that the appellate court erred in believing the claim of respondent that the house was uninhabitable when it was delivered to him in 1992. His claim was belied by his acceptance of the property without protest, as well as by the fact that his alleged caretakers had lived there from 1992 to 1996. Petitioner adds that he should have used his available money to improve the property, if the unit was indeed unlivable, instead of fully settling in advance in December 1992 the unpaid balance of its purchase price. Propriety of Review At the outset, the Court stresses that a question of law has arisen from petitioner's contention that simple possession under Article 531 of the Civil Code is not the same as "actual occupancy and possession at all times," as required of respondent under the Deed. Such question -- of what law, rule or principle is to govern a given state of facts -- is decidedly one of law.10 It may be raised in this appeal by certiorari under Rule 45 of the Rules of Court. Rules of Contract Interpretation Certain rules of contract interpretation come to mind at this point. First, in construing a contract, it is a fundamental task to ascertain the intention of the contracting parties.11 As a rule, such intention is determined by looking at the words used -- at all the words rather than at a particular word or two; and at words in context rather than just words standing alone.12 Indeed, under Article 1374 of the Civil Code, "the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly." Second, the ascertained intention of the parties is deemed an integral part of the contract, as though it has been originally expressed in unequivocal terms.13 And third, the reasonableness of the result obtained, after analysis and construction of a contract, must also be carefully considered.14 The conditions that were allegedly violated by respondent are contained in paragraph 10 of the Deed of Conditional Sale, as follows: "10. The Contract shall further [provide] the following terms and conditions: (a) The VENDEE is making this purchase for his/her own exclusive use and benefit and not for the use and benefit of another undisclosed party/parties; (b) The purpose of the sale shall be to aid the VENDEE in acquiring a house and lot for himself/herself and/or his/her immediate family, and not to provide him/her with a means for speculation or profit by a future assignment of his/her right herein acquired or the resale of the PROPERTY subject of this Contract. Therefore, the VENDEE, within the first FIVE (5) years of the existence of this contract agrees not to sell, assign, encumber, mortgage, lease, sub-let or in any manner alter or dispose of the property subject hereof, or his rights thereto, at any time, in whole or in part. After the FIVE (5) year period, VENDEE shall have the right to the full disposal of the property, provided that, VENDEE has been able to fully pay all of his/her obligations herein. However, the foregoing notwithstanding, the VENDEE may x x x at any time with prior consent of the VENDOR transfer his right to the PROPERTY to any eligible employee of the VENDOR, subject, however, to the right of first refusal by the VENDOR who may refund to the VENDEE all of his/her installment payments and the value of substantial improvements introduced by him/her if any, as appraised by the VENDOR; (c) The VENDEE, and his heirs and/or successors, shall actually occupy and be in possession of the PROPERTY at all times;

The Court's Ruling The Petition is meritorious. Sole Issue: Violation of the Terms and Conditions of the Deed of Conditional Sale

(d) The VENDEE shall not obstruct or interfere in any manner whatsoever with the right of the VENDOR or any of its duly authorized representatives to inspect, survey, repair, lay water pipes, gas, electric and telephone lines or other works of similar purposes; (e) The VENDEE shall abide by and comply with the Vendor's Occupancy Rules and Regulations the terms and conditions of which are made an integral part hereof by reference, as well as that issued by any other governmental authority which may, from time to time, be promulgated in regard to the use and preservation of the house and lot; (f) The VENDEE warrants in full the truth of the representation made in his/her Application For EMPLOYEE HOUSING LOAN, the terms of which are likewise made an integral part hereof by reference. "The violation of any of the conditions herein stipulated shall be considered as a breach of this Contract, and shall subject the VENDEE to the penalties provided for in paragraphs (11) and (12) hereof, including administrative sanctions, when warranted, in the event x x x the VENDEE has been found to have committed a misrepresentation/falsification in his/her application for an Employee Housing Loan."15 Actual Occupancy and Possession at All Times Plainly, the primary intention behind the above-quoted stipulations is to restrict the sale, the use and the benefit of the housing units to SSS employees and their immediate families only. This objective is in line with that of the SSS housing loan program - to aid its employees in acquiring their own dwelling units at a low cost.16 Such intent, draws life also from the social justice policy of RA 1161, as amended, otherwise known as the "Social Security System Law" granting direct housing loans to covered employees and giving priority to low-income groups.17 Indeed, the above goal is confirmed by the requirement that respondent-vendee and his heirs or assigns must actually occupy and possess the property at all times; by the proscription that he must not sell, assign, encumber, mortgage, lease, sublet or in any manner alter or dispose of the property for the first five (5) years; and by the further proviso that he may alienate or transfer his rights thereto at any time prior to full payment, but only to petitioner under its right of first refusal or to any other eligible SSS employee. These restrictive covenants are undeniably valid under Article 130618 of the Civil Code. The use of the conjunctive and in subparagraph (c) is not by any chance a surplusage. Neither is it meant to be without any legal signification. Its use is confirmatory of the restrictive intent that the houses provided by petitioner should be for the exclusive use and benefit of the SSS employee-beneficiary. It is easily discernible, therefore, that both "actual occupancy" and "possession at all times" -- not just one or the other -- were imposed as conditions upon respondent. The word and -- whether it is used to connect words, phrases or full sentences -must be accepted in its common and usual meaning as "binding together and as relating to one another."19 And implies a conjunction, joinder or union.20 Thus, respondent had to comply with not one, but two, concurring conditions -- actual occupancy and possession at all times. The question is, did he? We rule that he did not. No Actual Occupancy First, actual possession is not the same as actual occupancy. Hence, it was an error on the part of the lower courts to hold that the requirement of possession alone was a sufficient compliance with the conditions under subparagraphs (a) and (c). Under the law,21 "[p]ossession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject to the action of our will, or by the proper acts and legal formalities established for acquiring such right." As such, actual possession consists in the manifestation of acts of dominion over property of such a nature as a party would naturally exercise over his own22 -- as when respondent himself is physically in occupation of the property, or even when another

person who recognizes the former's rights as owner is in occupancy.23 In short, possession can be either "actual" or merely constructive. On the other hand, actual occupancy connotes "something real, or actually existing, as opposed to something merely possible, or to something which is presumptive or constructive."24 Unlike possession, it can only be actual or real, not constructive. Second, the uncontroverted fact remains that it was not respondent and/or his immediate family, but Penus and his wife, who had lived in the property since 1992; and that it was from Penus that Domingo took over possession in 1996. Thus, while it may be conceded that respondent "possessed" the property through his caretakers, there is no escaping the fact that he and/or his immediate family did not "actually occupy" it; and that he allowed other persons to benefit from its use. In his letter to SSS Assistant Administrator Amador Monteiro on January 24, 1996,25 respondent admitted as much, but tried to justify his noncompliance by saying that the property was not in a habitable condition at the time of delivery. This line of defense was sustained by the trial court on the ground of respondent's allegedly "uncontroverted or unrebutted evidence."26 The RTC's finding, however, is neither borne out by the records nor by substantial evidence. Hence, it constitutes an exception to the rule that this Court cannot review factual findings.27 Indeed, a thorough review of the records reveals that the averments of respondent were ably controverted by denials made by petitioner. Negating his claim that the house was located adjacent to a creek,28 it lengthily argued against it in the Memorandum it submitted to the trial court. Likewise, it must be stressed that under the Rules of Court,29 the defense alleged in his Answer is deemed controverted, whether or not petitioner filed a reply. Moreover, it is a basic rule of evidence that the party asserting an affirmative allegation must prove it.30 However, all that there is to back up the defense of respondent in this case is his self-serving testimony and that of his witness, Domingo. As to the latter's testimony, it suffices to say that he could not have affirmed the alleged condition of the unit in 1992, as he took possession of it only in 1996, four years after it had lain exposed to the elements with no improvements whatsoever. For four years, respondent likewise kept his silence about the purported condition of the unit. He accepted it without any whimper of protest on October 23, 1992, and even paid the housing loan in full in December of the same year. If it was indeed uninhabitable, he should have refused to accept it or immediately protested its condition. On the other hand, there is enough documentary evidence to debunk his claim. The report of petitioner's Internal Audit Service31 significantly established that 509 of the 728 awardees -- presumably situated similarly as he was -- had occupied their units in compliance with the assailed requirement. The Interview Slip32 submitted in evidence by petitioner also showed that Penus and his wife, and later Domingo, had lived in the unit since 1992. In the face of these facts, it is difficult to believe the defense of respondent. For how could the units be habitable to many others, but not to him? Likewise, this Court takes judicial notice of the fact that low-cost houses such as those offered by petitioner33 are usually core or shell units without adequate divisions, ceilings, cabinets, paint and, in some cases, electrical connections -- features that have to be installed, completed or refurbished by the awardees. The idea, of course, is to provide immediate but affordable living spaces that they can work at improving, according to their needs and finances and while living therein. Certainly, at P172,978.85 (the cost of the house and lot in this case), it is but fair to accept the lack of amenities. Neither can respondent assail the validity of the Contract as a one-sided "take it or leave it" agreement. To begin with, a contract of adhesion -- wherein one party imposes a ready-made form of contract on the other -- is not strictly against the law.34 The terms of the agreement cannot be modified, but can be freely rejected in its entirety, by the other party. On the other hand, the latter's adherence thereto would mean consent.35 We need only to remind respondent that contractual obligations between the parties have the force of law and must be complied with in good faith.36 We therefore do not see any reason to discuss respondent's added arguments, other than to say that the objectives of lowcost housing -- mandated under the social justice provisions of the Constitution37 -- are too important to be sidetracked by lame, untimely and unfounded excuses. Such excuses do nothing but harm to the salutary efforts of providing the

underprivileged and the homeless with cheap but decent houses. It is for this reason that we regard this case as no ordinary skirmish over contractual relations. Rescission In view of the foregoing discussion, we rule that rescission of the Contract is the proper recourse. Article 1191 of the Civil Code provides: "Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. "The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible." As noted in previous cases, the rescission contemplated under Article 1191 is a principal action for "resolution," which is based on a breach by a party of its reciprocal obligations.38 The present Contract is one of conditional sale -- oftentimes referred to as a contract to sell, wherein ownership or title is retained by the vendor39 until "full payment by the VENDEE of the full purchase price of the PROPERTY, with all the interest due thereon, as well as taxes and other charges AND upon their faithful compliance with all the conditions of this Contract x x x."40 Although a transfer of ownership or title from the seller to the buyer is normally predicated upon the payment of the purchase price, the parties are nevertheless free to stipulate other lawful conditions by which they bind themselves and upon which transfer of ownership depends.41 In this case, that other obligation was faithful compliance with the conditions of the Contract. Respondent did not faithfully comply with the conditions under subparagraphs (10)(a) and (c). His noncompliance also constituted a breach of his reciprocal obligations under the Deed. The Deed itself provides for its annulment and cancellation by reason of a breach of the terms and conditions stipulated therein. Paragraphs 11 and 12 provide thus: "11. Should the VENDEE violate, refuse or fail to comply with any of the terms and conditions stipulated herein, for whatever reason, or is found to have committed any misrepresentation in his/her application for EMPLOYEE HOUSING LOAN, this Contract shall be deemed annulled and cancelled without prejudice of the rights of the parties under Republic Act No. 6652, otherwise known as the Maceda Law, and shall entitle the VENDOR to immediately repossess the property as if this Contract was never made; for this purpose, the VENDEE shall be considered and treated as a tenant holding the property without the permission of the VENDOR, and must peacefully vacate the premises immediately upon repossession thereof by the VENDOR. The annulment and cancellation of this Contract and the right of the VENDOR to repossess the property shall become effective upon mere written notice thereof to the VENDEE. "12. In addition to the consequences stated in the immediately preceding paragraph, the VENDEE shall forfeit in favor of the VENDOR all the installments made, to stand as rent for his/her occupation of the property, likewise subject to the provisions of Republic Act No. 6552."42 (Italics supplied) However, this Court holds that the forfeiture provision under paragraph 12 does not apply to the payment made by respondent. The plain and simple reason is that he did not pay the purchase price by installment, but instead paid it in full in December 1992 -- two months after the delivery of the unit. Hence, that payment was beyond the ambit of Republic Act 6552, otherwise known as the Realty Installment Buyer Act or the Maceda Law. Doctrinally, mutual restitution must follow rescission. Under Article 1385 of the Civil Code, "rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interests x x x."43 Moreover, "[t]o rescind is to declare a contract void at its inception and to put an end to it as though it never was."44 Hence, rescission restores the parties to their relative positions, as if no contract has been made. Paragraph 11, cited above, supports the mutual restitution required in rescission.

Respondent is thus obliged to return the house and lot sold, as well as rental payments he may have earned, if any. On the other hand, petitioner is mandated to refund to him his full payment of P172,978.85 plus legal interest of 6 percent per annum, as well as the value of substantial improvements introduced by him, as appraised by petitioner. Indeed, stipulated in the Deed is such appraisal by the vendor,45 upon transfer of the property to petitioner or to any of its eligible employees. This condition is reasonably and justly applicable and proper in the present case. WHEREFORE, this Petition is hereby GRANTED and the assailed Decision SET ASIDE. The Deed of Conditional Sale is CANCELLED. Petitioner is ORDERED to pay respondent P172,978.85, plus the legal interest and the value of any substantial improvements thereon. Respondent is ORDERED to vacate immediately Block 18, Lot 8, SSS Housing, North Fairview, Quezon City; and to surrender possession thereof to petitioner. No costs. SO ORDERED. Corona, and Carpio-Morales, JJ., concur. Sandoval-Gutierrez, J., on leave. August 7, 1915 G.R. No. L-9608 DIEGO LIAN, plaintiff-appellee, vs. MARCOS P. PUNO, ET AL., defendants-appellants. Johnson, J.: The facts upon which the decision in this case depends are as follows: (1) The the plaintiff, in the month of May, 1908, and for a long time prior thereto, was the owner of a certain parcel of land particularly described in paragraph 2 of the complaint. (2) That on the 16th day of May, 1908, the plaintiff executed the following document, which conferred upon the defendant Marcos P. Puno the power, duties and obligations therein contained: I, Diego Lian, of age, married, a resident of Daet, Province of Ambos Camarines, Philippine Islands, and at the present time temporarily residing in this city of Tarlac, capital of the Province of Tarlac, P.I., set forth that I hereby confer sufficient power, such as the law requires, upon Mr. Marcos P. Puno, likewise a resident of this city of Tarlac, capital of the Province of Tarlac, in order that in my name and representation he may administer the interest I possess within this municipality of Tarlac, purchase, sell, collect and pay, as well as sue and be sued before any authority, appear before the courts of justice and administrative officers in any proceeding or business concerning the good administration and advancement of my said interests, and may, in necessary cases, appoint attorneys at law or attorneys in fact to represent him. The meaning, purport, and power conferred by this document constitute the very gist of the present action. (3) That in June, 1911, the defendant Puno, for the sum of P800, sold and delivered said parcel of land to the other defendants. The plaintiff alleges that the said document (Exhibit A) did not confer upon the defendant Puno the power to sell the land and prayed that the sale be set aside; that the land be returned to him, together with damages. The defendants at first presented a demurrer to the complaint, which was overruled. To the order overruling the demurrer the defendants duly excepted. They later answered. In their answer they first denied generally and specially all of the important facts stated in the complaint. In their special answer or defense they admitted the sale of the land by Puno to the other defendants and alleged that the same was a valid sale and prayed to be relieved from the liability under the complaint, with their costs. Upon the issue thus presented the lower court decided: (1) That the document Exhibit A did not give Puno authority to sell the land; (2) that the sale was illegal and void; (3) That defendants should return to the land to the plaintiff; and (4) That the defendants should pay to the plaintiff the sum of P1,000 as damages, P400 of which the defendant Puno should alone be responsible for, and to pay the costs.

From that decision the defendants appealed to this court and made the following assignments of error: I. The lower court erred in overruling the demurrer filed by the appellants to the complaints. II. The lower court erred in holding that the appellant Marcos P. Puno was not authorized to sell the land in question and that the sale executed by the said Marcos P. Puno to the other appellants, Enrique, Vicente, Aquilina and Remedios, surnamed Maglanok, is null and void. III. The lower court erred in ordering the appellee, Diego Lian, to return to the appellants, Enrique, Vicente, Aquilina, and Remedios Maglanok the sum of P800, the selling price of the land question. III. And, finally, the lower court erred in sentencing the appellants to pay to the appellee the sum of P1,000, the value of the products collected, and to pay the costs. IV. And, finally, the lower court erred in sentencing the appellant to pay to the appellee the sum of P1,000, the value of the products collected, and to pay the costs. With reference to the first assignment of error, we are of the opinion that the facts stated in the opinion are sufficient to constitute a cause of action. With reference to the second assignment of error, the plaintiff alleges that the power of attorney, as contained in Exhibit A, did not authorize the defendant Puno had full and complete power and authority to do what he did. The lower court held that Exhibit A only gave Puno power and authority to administer the land; that he was not authorized to sell it. Omitting the purely explanatory parts of Exhibit A, it reads as follows: I, Diego Lian, set forth that I confer sufficient power, such as the law requires, upon Mr. Marcos P. Puno in order that in my name and representation he may administer purchase, sell, collect and pay in any proceeding or business concerning the good administration and advancement of my said interests, and may, in necessary cases, appoint at law or attorneys in fact to represent him. Contracts of agency as well as general powers of attorney must be interpreted in accordance with the language used by the parties. the real intention of the parties is primarily to be determined from the language used. The intention is to be gathered from the whole instrument. In case of doubt resort must be had to the situation, surroundings and relations of the parties. Whenever it is possible, effect is to be given to every word and clause used by the parties. It is to be presumed that the parties said what they intended to say and that they used each word or clause with some purpose and that purpose is, if possible, to be ascertained and enforced. The intention of the parties must be sustained rather than defeated. If the contract be open to two constructions, one of which would uphold while the other would overthrow it, the former is to be chosen. So, if by one construction the contract would be illegal, and by another equally permissible construction it would be lawful, the latter must be adopted. The acts of the parties in carrying out the contract will be presumed to be done in good faith. The acts of the parties will be presumed to have been done in conformity with and not contrary to the intent of the contract. The meaning of generals words must be construed with reference to the specific object to be accomplished and limited by the recitals made in reference to such object. With these general observations in mind, ,let us examine the terms of the power conferred upon the defendant Puno (Exhibit A) and ascertain, if possible, what was the real intent of the plaintiff. The lower court held that the only p ower conferred was the power to administer. Reading the contract we find it says that the plaintiff I confer power that he may administe r purchase, sell, collect and pay in any proceeding or business concerning the good administration and advan cement of my said interests. The words administer, purchase, sell, etc., seem to be used coordinately. Each has equal force with the other. There seems to be no good reason for saying that Puno had authority to administer and not to sell when to sell was as advantageous to the plaintiff in the administration of his affairs as to administer. To hold that the power was to administer only when the power to sell was equally conferred would be to give to special words of the contract a special and limited meaning to the exclusion of other general words of equal import. The record contains no allegation on proof that Puno acted in bad faith or fraudulently in selling the land. It will be presumed that he acted in good faith and in accordance with his power as he understood it. That his interpretation of his power, as gathered from the contract (Exhibit A), is tenable cannot, we believe, be successfully denied. In view of that fact and view of

the fact that, so far as the record shows, the other defendants acted in good faith, we are of the opinion that the contract, liberally construed, as we think it should be, justifies the interpretation given it by Puno. In reaching this conclusion, we have taken into account the fact that the plaintiff delayed his action to annul said sale from the month of June, 1911, until the 15th of February, 1913. Neither have we overlooked the fact in the brief of the appellants that the plaintiff has not returned, nor offered to return, nor indicated a willingness to return, the purchase price. (Art. 1308 of the Civil Code; Manikis vs. Blas, No. 7585.1). In view of all the foregoing, we are of the opinion that the lower court committed the error complained of in the second assignment, and, without discussing the other assignments of error, we are of the opinion, and so hold, that the judgment of the lower court should be and is hereby revoked and that the appellants should be relieved from all liability under the complaint. Without any finding as to costs, it is so ordered. Arellano, C.J., Torres, Carson, and Araullo, JJ., concur. G.R. No. L-19012 October 30, 1967 VICTORIA JULIO, plaintiff-appellant, vs. EMILIANO DALANDAN and MARIA DALANDAN, defendants-appellees. SANCHEZ, J.: Disputing the correctness of the lower court's order of April 29, 1961 dismissing the complaint, plaintiff elevated the case1 to this Court on appeal. Plaintiff's complaint which defendants, by a motion to dismiss, successfully overturned in the court below is planted upon a document Annex "A" of the complaint, labeled in the national language "SALAYSAY" (Statement). It was in the form of an affidavit subscribed and sworn to by one Clemente Dalandan on September 8, 1950. By the terms of this writing, Clemente Dalandan, deceased father of defendants Emiliano and Maria Dalandan, acknowledged that a four-hectare piece of riceland in Las acknowledged that a four-hectare piece of riceland in Las Pias, Rizal belonging to Victoriana Dalandan, whose only child and heir is plaintiff Victoria Julio, was posted as security for an obligation which he, Clemente Dalandan, assumed but, however, failed to fulfill. The result was that Victoriana's said land was foreclosed. The key provisions of said document are:2 3. Na ang lupang palayang ito na pagaari ni VICTORIANA DALANDAN at sa kasalukuyan ay walang ibang tagapagmana kung di si VICTORIA JULIO, ay napafianza sa akin nuong bago pa dumating ang huling digmaan at dahil sa hindi ako nakatupad sa aking pananagutang na sasagutan ng bukid niyang ito ay naembargo ang nasabi niyang lupa; [That this riceland owned by VICTORIANA DALANDAN whose sole heir is VICTORIA JULIO was posted as security for an obligation assumed by me even before the outbreak of the last war and because I failed to fulfill the obligation secured by her said farm the same was foreclosed;] 4. Na dahil dito ay ako samakatuwid ay nanagot sa kanya (VICTORIA JULIO), sa pagkakaembargo ng lupa niyang iyong kung kaya't nagkasundo kami na ako ay nanagot sa kanya sa pagkaembargong iyon at ipinangako ko sa kanya na ang lupa niyang iyon na naembargo ng dahil sa aking pananagutan ay aking papalitan ng bukid din na may mahigit na APAT (4) na hectarea (o humigit kumulang sa APAT NA KABANG BINHI); [That because of this, and as agreed upon between us, I accordingly held myself liable to Victoria Julio for the foreclosure of her said land, and I promised her that I would replace her aforesaid land which was foreclosed because of my obligation with another farm of more than four; (4) hectares, that is, one planted to four cavanes of seedlings, more or less;] 5. Na hindi maaring pilitin ang aking mga anak (EMILIANO AT MARIA DALANDAN), na hingin ang ani ng bukid na nabangit sa itaas ng salaysay na ito; [That my children (EMILIANO AND MARIA DALANDAN) may not be forced to give up the harvest of the farm herein above mentioned;] 6. Na hindi rin maaring hingin kaaggad sa lalong madaling panahon ang kapalit ng bukid na may apat na kabang binhi;

[That neither may the land which was exchanged for the farm with four cavanes of seedlings be demanded immediately;] Victoria Julio, in turn, joined Clemente Dalandan in the execution of, and also swore to, the said document, in this wise: Na, ako VICTORIA JULIO, na binabanggit sa itaas nito sa salaysay ni CLEMENTE DALANDAN, ay nagpapatunay na tutoong lahat ang kanyang salaysay na iyon at tinatanggap ko ang kanyang mga sinasabi. [That I, VICTORIA JULIO, mentioned in the above statement of CLEMENTE DALANDAN, attest to the truth of, and accept, all that he stated therein.] Back to the complaint herein. Plaintiff went on to aver that the land of Clemente Dalandan set forth in the document, Annex "A" of the complaint, referred to six small parcels described in paragraph 4 thereof with a total area of barely two hectares "the only land owned by Clemente Dalandan at the time of the execution of the document" except fifty plots or "banigan" (saltbeds), which were previously conveyed to plaintiff's mother by mean of pacto de retro sale and title to which had already been vested in the latter; that after the death of Clemente Dalandan, plaintiff requested from defendants, Clemente's legitimate and surviving heirs who succeeded in the possession of the land thus conveyed, to deliver the same to her; that defendants "insisted that according to the agreement", neither delivery of the land nor the fruits thereof could immediately be demanded, and that "plaintiff acceded to this contention of defendants and allowed them to continue to remain in possession" thereof; that demands have "been made upon defendants to fix the period within which they would deliver to the herein plaintiff the above-described parcels of land but defendants have refused and until now still refuse to fix a specific time within which they would deliver to plaintiff the aforementioned parcels of land." Predicated upon the foregoing allegations, plaintiff prayed for judgment against defendants: (a) Adjudging the herein plaintiff as owner of the land described in paragraph 4 hereof; (b) Fixing a time within which defendants should deliver the said parcels of land to the herein plaintiff as well as the fruits thereof; (c) Adjudging that upon the expiration of the said time defendants convey and deliver to the herein plaintiff the said parcels of land as well as the fruits thereof; (d) Ordering the defendants to pay the plaintiff the sum of P2,000.00 as attorneys' fees; (e) Ordering the defendants to pay the costs of the suit; and granting such other relief and remedy as may be just and equitable in the premises. Defendants met the complaint with a motion to dismiss grounded on: (1) prescription of plaintiff's action; (2) pendency of another suit between the same parties for the same cause; and (3) release and/or abandonment of the claim set forth in plaintiff's complaint. By its order of April 29, 1961, the lower court ruled that plaintiff's suit, viewed either as an action for specific performance or for the fixing of a term, had prescribed. Reason: the 10-year period from the date of the document had elapsed. The lower court found it unnecessary to pass upon the other grounds for the motion to dismiss. Hence, this appeal. 1. The threshold problem, basic to an understand of the issues herein involved, is the meaning to be attached to the document now under review. Undoubtedly, bad more felicitous terms been employed, the intention of the parties could easily be read. Unfortunately, ineptness of expression exacts of us an examination of the document. Familiar rules of interpretation of documents tell us that in ascertaining the intention of the parties, the contents thereof should not be interpreted piecemeal; all parts, provisions or terms are to be considered; each paragraph clause or phrase must be read not in isolation, but in the light of the entire writing; doubtful ones should be given that sense which may result from all of them, considered as a whole. Such construction will be adopted as will result from an overall view of the document itself.

It is, in this perspective that we now look into the writing. Adverting to paragraph 4 of the deed, defendants take the position that the deceased Clemente Dalandan simply "promised" to Victoria Julio a farm of about four hectares to replace the land of Victoriana Dalandan (mother of Victoria Julio) which was foreclosed. But this view loses sight of the later provisions thereof. By paragraph 5, Clemente's children may not be forced to give up the harvest of the farm mentioned in the deed. This was followed by paragraph 6 which states that Victoria Julio may not immediately demand the substitute (kapalit) for the forfeited land. These last two statements in the deed express the dominant purpose of the instrument. They convey the idea that the naked ownership of the land in substitution was, indeed, transferred to Victoria Julio. Else there would have been no sense in the proviso that the fruits as well as the physical possession of the land could not immediately be demanded by Victoria Julio from Clemente's children, the herein defendants. For, the right to demand fruits and physical possession of property has been known to be attributes of ownership. The disputed complaint in paragraphs 6 and 7 thereof, in essence, avers plaintiff's request for the delivery of the real property; defendants' answer that "according to the agreement" neither land nor fruits thereof could immediately be taken away from them, and plaintiff's conformity thereto; and plaintiff's demands that the period for delivery be fixed and defendants' refusal. The allegations of the complaint just noted carry us to another aspect of the document: defendants' rights over the land vis-avis plaintiff's. What rights were transmitted to defendants by their father, Clemente Dalandan? Paragraphs 6 and 7 of the document supply the answer. They are usufructuaries for an undetermined length of time. For so long as that period has not been fixed and has not elapsed, they hold the property. Theirs is to enjoy the fruits of the land and to hold the same as trustees of Victoria Julio. And this because, by the deed, Clemente Dalandan divested himself of the ownership qualified solely by withholding enjoyment of the fruits and physical possession. In consequence, Clemente Dalandan cannot transmit to his heirs, the present defendants, such ownership.3 Nemo dat quod non habet. And then, the document is a declaration by Clemente Dalandan, now deceased, against his own proprietary interests. Such document is binding upon his heirs.4 2. But, defendants aver that recognition of the trust may not be proved by evidence aliunde. They argue that by the express terms of Article 1443 of the Civil Code, "[n]o express trusts concerning an immovable or any interest therein may be proved by parol evidence." This argument overlooks the fact that no oral evidence is necessary. The express trust imposed upon defendants by their predecessor appears in the document itself. For, while it is true that said deed did not in definitive words institute defendants as trustees, a duty is therein imposed upon them when the proper time comes to turn over both the fruits and the possession of the property to Victoria Julio. Not that this view is without statutory support. Article 1444 of the Civil Code states that: "No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended." In reality, the development of the trust as a method of disposition of property, so jurisprudence teaches, "seems in large part due to its freedom from formal requirements."5 This principle perhaps accounts for the provisions in Article 1444 just quoted. For, "technical or particular forms of words or phrases are not essential to the manifestation of intention to create a trust or to the establishment thereof."6 Nor would the use of some such words as "trust" or "trustee" essential to the constitution of a trust as we have held in Lorenzo vs. Posadas, 64 Phil. 353, 368. Conversely, the mere fact that the word "trust" or "trustee" was employed would not necessarily prove an intention to create a trust. What is important is whether the trustor manifested an intention to create the kind of relationship which in law is known as a trust. It is unimportant that the trustor should know that the relationship "which he intends to create is called a trust, and whether or not he knows the precise characteristics of the relationship which is called a trust."7 Here, that trust is effective as against defendants and in favor of the beneficiary thereof, plaintiff Victoria Julio, who accepted it in the document itself.8 3. Plaintiff is not to be handicapped by a lack of a clear statement as to the actual description of the land referred to in the trust deed, basis of plaintiff's cause of action. Obviously, the document was not prepared by a learned scrivener. It imperfectly speaks of a "farm of more than four (4) hectares." But averment in the complaint is not lacking to clear the uncertainty as to the identity of the land mentioned in that document. Plaintiff points out in paragraph 4 of her complaint that while said deed does not specifically define its boundaries "the parties to the said document actually refer" to the land which was "the only land owned by Clemente Dalandan at the time of the execution" thereof, and which is set forth in small parcels under said paragraph. This allegation in the complaint does not add any new term or stipulation to the writing. Rather, it explains an obscurity occasioned by lack of precision in a clumsily prepared document. Thus it is, that authorities are not wanting in support of the view that "in so far as the identity of land involved" in a trust is concerned, "it has also been held that the writings, in being considered for the purpose of satisfying the statute of frauds, are to be considered in their setting, and that parol evidence is admissible to make clear the terms of a trust the existence of which is established by a writing, . . ."9

4. This case having been brought before us on a motion to dismiss, we need but stress that we are to be guided solely by the averments of the complaint. So guided, we must say that there is sufficient showing in the complaint that there is an acknowledgment on the part of defendants that they hold the property not as their own, but in trust. There is no statement in the complaint intimating disavowal of such trust; the complaint alleges refusal to deliver possession. In the sense in which we understand the complaint to be, it cannot be said that plaintiff's action to recover the property thus held in trust has prescribed. Given the fiduciary relation which according to the complaint is recognized by defendants, the latter may not invoke the statute of limitations as a bar to plaintiff's action.10 5. Even on the assumption that defendants have not been constituted as trustees under the document in question, still we arrive at the same conclusion. For, plaintiff's action is aimed, by an alleged owner of real property at recovery of possession thereof, conditioned upon the fixing of the period therefor. Since plaintiff claims ownership, possession, in the words of this Court "is a mere consequence of ownership."11 It may not be said that plaintiff's suit is barred by the statute of limitations. She is protected by Article 1141 of the Civil Code, which reads: "Real actions over immovables prescribe after thirty years." We take this view for the obvious reason that defendants' motion to dismiss on this score is directed at the prescription of plaintiff's action not on acquisitive prescription. 6. Defendants in their brief draw attention, by way of counter-assignment of error, to their claim that this case should also be dismissed upon the ground that there exists another action pending between the same parties for the same cause, and on the further ground of release and/or abandonment. The facts bearing on this issue are: In Land Registration Case N-706, G.L.R.O. Record No. N-7014, Court of First Instance of Rizal, defendants are applicants. That case so defendants aver covers the very same land set forth in plaintiff's complaint. In their opposition to that application, herein plaintiff prayed that the same land the subject of this suit (covered by Plan PSU 129514) be registered "in the names of the herein applicants and oppositor with the specific mention therein that the herein oppositor owns fifty salt beds therein and having an absolute right to the use of the depositories." Defendants argue that if plaintiff was the real owner of the entire area, opposition should have been presented on the whole, not merely as to fifty salt beds. Parenthetically, the question of ownership over the portion of fifty salt beds had already been resolved by this Court in a decision promulgated on February 29, 1964 in L-19101 (Emiliano Dalandan and Maria Dalandan, plaintiffs, vs. Victoria Julio, et al., defendants). There, this Court affirmed the order dismissing the complaint filed by defendants herein, plaintiffs therein, for the repurchase of fifty salt beds which were the subject of a sale with pacto de retro executed on September 24, 1932 by Clemente Dalandan in favor of Victoriana Dalandan, predecessor of plaintiff. There is no point in the argument that an action is pending between plaintiff and defendants. Because, with the exception of the fifty salt beds which according to the complaint is not included in the deed plaintiff filed no opposition to defendants' application for land registration. Failure to so object in reference to the registration of a bigger portion of the land, simply means that there is no case between the parties in reference thereto in the land registration proceeding. Not that plaintiff released or abandoned the claim to that bigger portion. For, there is an averment in the complaint that an agreement exists between plaintiff and defendants to defer delivery thereof; and that defendants thereafter refused to fix the period for such delivery. So that, on the assumption that defendants should succeed in obtaining title to the property in the land registration case, such would not bar Victoria Julio from requiring them to execute a conveyance of the property in her favor, in the event she (plaintiff herein) prevails in the present case. And this, because defendants could here be declared as mere trustees of plaintiff, if the averments of the complaint are found to be true."12 For the reasons given, the order of the Court of First Instance of Rizal dated April 29, 1961 dismissing the complaint is hereby reversed and set aside, with instructions to remand the case to the court below for further proceedings. Costs against defendants-appellees. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Castro, Angeles and Fernando, JJ., concur. [G.R. No. L-43706, November 14, 1986]

NATIONAL POWER CORPORATION, PETITIONER, VS. COURT OF APPEALS AND PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., RESPONDENTS. PARAS, J.: This is a petition for review on certiorari seeking to set aside: (a) the judgment of respondent Court of Appeals dated March 25, 1976 in CA-G.R. No. 50112-R, entitled National Power Corporation, Plaintiff-Appellee versus The Philippine American Insurance Company, Inc. Defendant-Appellant, which reversed the decision of the Court of First Instance of Manila in Civil Case No. 70811 entitled "National Power Corporation v. Far Eastern Electric, Inc., et al. and (b) respondent's Court's resolution dated April 19, 1976 denying petitioner National Power Corporation's Motion for Reconsideration (Petition, p.13, Rollo). The undisputed facts of this case are as follows: The National Power Corporation (NPC) entered into a contract with the Far Eastern Electric, Inc. (FEEI) on December 26, 1962 for the erection of the Angat Balintawak 115-KW-3-Phase transmission lines for the Angat Hydroelectric Project. FEEI agreed to complete the work within 120 days from the signing of the contract, otherwise it would pay NPC P200.00 per calendar day as liquidated damages, while NPC agreed to pay the sum of P97,829.00 as consideration. On the other hand, Philippine American General Insurance Co., Inc. (Philamgen) issued a surety bond in the amount of P30,672.00 for the faithful performance of the undertaking by FEEI, as required. The condition of the bond reads: "The liability of the PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC. under this bond will expire One (1) year from final Completion and Acceptance and said bond will be cancelled 30 days after its expiration, unless surety is notified of any existing obligation thereunder." (Exhibit 1-a) in correlation with the provisions of the construction contract between Petitioner and Far Eastern Electric, Inc. particularly the following provisions of the Specifications, to wit: 1. Par. 1B-21 Release of Bond "1B-21 Release of Bond "The Contractor's performance bond will be released by the National Power Corporation at the expiration of one (1) year from the completion and final acceptance of the work, pursuant to the provisions of Act No. 3959, and subject to the General Conditions of this contract:" Page 49, Printed Record on Appeal); and 2. GP-19 of Specifications, which reads:

"(a) Should the Contractor fail to complete the construction of the work as herein specified and agreed upon, or if the work is abandoned, x x x the Corporation shall have the power to take over the work by giving notice in writing to that effect to the Contractor and his sureties of its intention to take over the construction work. "(b) x x x It is expressly agreed that in the event the Corporation takes over the work from the Contractor, the latter and his bondsmen shall continue to be liable under this contract for any expense in the completion of the work in excess of the contract price and the bond filed by the Contractor shall be answerable for the same and for any and all damages that the Corporation may suffer as a result thereof." (pp. 76-78, Printed Record on Appeal) FEEI started construction on December 26, 1962 but on May 30, 1963, both FEEI and Philamgen wrote NPC requesting the assistance of the latter to complete the project due to unavailability of the equipment of FEEI. The work was abandoned on June 26, 1963, leaving the construction unfinished. On July 19, 1963, in a joint letter, Philamgen and FEEI informed NPC that FEEI was giving up the construction due to financial difficulties. On the same date, NPC wrote Philamgen informing it of the withdrawal of FEEI from the work and formally holding both FEEI and Philamgen liable for the cost of the work to be completed as of July 20, 1962 plus damages.

The work was completed by NPC on September 30, 1963. On January 30, 1967 NPC notified Philamgen that FEEI had an outstanding obligation in the amount of P75,019.85, exclusive of interest and damages, and demanded the remittance of the amount of the surety bond to answer for the cost of completion of the work. In reply, Philamgen requested for a detailed statement of account, but after receipt of the same, Philamgen did not pay as demanded but contended instead that its liability under the bond has expired on September 20, 1964 and claimed that no notice of any obligation of the surety was made within 30 days after its expiration. (Record on Appeal, pp. 191-194; Rollo, pp. 62-64). NPC filed Civil Case No. 70811 for collection of the amount of P75,019.89 spent to complete the work abandoned; P144,000.00 as liquidated damages and P20,000.00 as attorney's fees. Only Philamgen answered while FEEI was declared in default. The trial court rendered judgment in favor of NPC, the dispositive portion of which reads: "WHEREFORE, the defendant Far Eastern Electric, Inc., is ordered to pay the plaintiff the sum of P75,019.86 plus interest at the legal rate from September 21, 1967 until fully paid. Out of said amount, both defendants, Far Eastern Electric, Inc., and the Philippine American Insurance Company, Inc., are ordered to pay, jointly and severally, the amount of P30,672.00 covered by Surety Bond No. 26268, dated December 26, 1962, plus interest at the legal rate from September 21, 1967 until fully paid. "Both defendants are also ordered to pay plaintiff the sum of P3,000.00 as attorney's fees and costs." On appeal by Philamgen, the Court of Appeals reversed the lower court's decision and dismissed the complaint. Hence this petition. Respondent Philamgen filed its comment on the petition on August 6, 1978 (Rollo, p. 62) in compliance with the resolution dated June 16, 1976 of the First Division of this Court (Rollo, p. 52) while petitioner NPC filed its Reply to the comment of respondent (Rollo, p. 76) as required in the resolution of this Court of August 16, 1976 (Rollo, p. 70). In the resolution of September 20, 1976, the petition for certiorari was given due course (Rollo, p. 85). Petitioner's brief was filed on November 27, 1976 (Rollo, p. 97) while Philamgen failed to file brief within the required period and this case was submitted for decision without respondent's brief in the resolution of this Court of February 25, 1977 (Rollo, 103). In its brief, petitioner raised the following assignment of errors: I. RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER SHOULD HAVE GIVEN NOTICE TO PRIVATE RESPONDENT PHILAMGEN OF ANY EXISTING OBLIGATION WITHIN 30 DAYS FROM EXPIRATION OF THE BOND TO HOLD SAID SURETY LIABLE THEREUNDER, DESPITE PETITIONER'S TAKING OVER OF THE WORK ABANDONED BY THE CONTRACTOR BEFORE ITS COMPLETION. II.ASSUMING ARGUENDO THAT PETITIONER SHOULD STILL NOTIFY PRIVATE RESPONDENT PHILAMGEN OF ANY EXISTING OBLIGATION UNDER THE BOND DESPITE THE TAKE-OVER OF WORK BY PETITIONER, RESPONDENT COURT OF APPEALS NONETHELESS ERRED IN HOLDING THAT PETITIONER'S LETTER DATED JULY 19, 1963 (EXH. E) TO PRIVATE RESPONDENT WAS NOT SUFFICIENT COMPLIANCE WITH THE CONDITION OF THE BOND. III.RESPONDENT COURT OF APPEALS ERRED IN ABSOLVING PRIVATE RESPONDENT PHILAMGEN FROM ITS LIABILITY UNDER THE BOND. The decisive issue in this case is the correct interpretation and/or application of the condition of the bond relative to its expiration, in correlation with the provisions of the construction contract, the faithful performance of which, said bond was issued to secure. The bone of contention in this case is the compliance with the notice requirement as a condition in order to hold the surety liable under the bond. Petitioner claims that it has already complied with such requirement by virtue of its notice dated July 19, 1963 of abandonment of work by FEEI and of its takeover to finish the construction, at the same time formally holding both FEEI and

Philamgen liable for the uncompleted work and damages. It further argued that the notice required in the bond within 30 days after its expiration of any existing obligation, is applicable only in case the contractor itself had completed the contract and not when the contractor failed to complete the work, from which arises the continued liability of the surety under its bond as expressly provided for in the contract. Petitioner's contention was sustained by the trial court. On the other hand, private respondent insists that petitioner's notice dated July 19, 1983 is not sufficient despite previous events that it had knowledge of FEEI's failure to comply with the contract and claims that it cannot be held liable under the bond without notice within thirty days from the expiration of the bond, that there is a subsisting obligation. Private respondent's contention is sustained by the Court of Appeals. The petition is impressed with merit. As correctly assessed by the trial court, the evidence on record shows that as early as May 30, 1963, Philamgen was duly informed of the failure of its principal to comply with its undertaking. In fact, said notice of failure was also signed by its Assistant Vice President. On July 19, 1963, when FEEI informed NPC that it was abandoning the construction job, the latter forthwith informed Philamgen of the fact on the same date. Moreover, on August 1, 1963, the fact that Philamgen was seasonably notified, was even bolstered by its request from NPC for information of the percentage completed by the bond principal prior to the relinquishment of the job to the latter and the reason for said relinquishment. (Record on Appeal, pp. 193-195). The 30-day notice adverted to in the surety bond applies to the completion of the work by the contractor. This completion by the contractor never materialized. The surety bond must be read in its entirety and together with the contract between NPC and the contractors. The provisions must be construed together to arrive at their true meaning. Certain stipulations cannot be segregated and then made to control. Furthermore, it is well settled that contracts of insurance are to be construed liberally in favor of the insured and strictly against the insurer. Thus ambiguity in the words of an insurance contract should be interpreted in favor of its beneficiary. (Serrano v. Court of Appeals, 130 SCRA 327; July 16, 1984). In the case at bar, it cannot be denied that the breach of contract in this case, that is, the abandonment of the unfinished work of the transmission line of the petitioner by the contractor Far Eastern Electric, Inc. was within the effective date of the contract and the surety bond. Such abandonment gave rise to the continuing liability of the bond as provided for in the contract which is deemed incorporated in the surety bond executed for its completion. To rule therefore that private respondent was not properly notified would be gross error. PREMISES CONSIDERED, the decision dated March 25, 1976 and the resolution dated April 19, 1976 of the Court of Appeals are hereby SET ASIDE, and a new one is hereby rendered reinstating the decision of the Court of First Instance of Manila in Civil Case No. 70811 entitled "National Power Corporation v. Far Eastern Electric, Inc., et al." SO ORDERED. Feria, (Chairman), Fernan, Alampay, and Gutierrez, Jr., JJ., concur. G.R. No. 124791 February 10, 1999 JOSE RAMON CARCELLER, petitioner, vs. COURT OF APPEALS and STATE INVESTMENT HOUSES, INC., respondents. QUISUMBING, J.: Before us is a petition for review of the Decision 1 dated September 21, 1995 of the Court of Appeals 2 in CA G. R. CV No. 37520, as well as its Resolution 3 dated April 25, 1996, denying both parties' motion for partial reconsideration or clarification. The assailed decision affirmed with modification the judgment 4 of the Regional Trial Court of Cebu City, Branch 5, in Civil Case No. CEB 4700, and disposed of the controversy as follows:

However, We do not find it just that the appellee, in exercising his option to buy, should pay appellant SIHI only P1,800,000.00. In fairness to appellant SIHI, the purchase price must be based on the prevailing market price of real property in Bulacao, Cebu City. (Emphasis supplied) The factual background of this case is quite simple. Private respondent State Investment Houses, Inc. (SIHI) is the registered owner of two (2) parcels of land with a total area of 9,774 square meters, including all the improvements thereon, located at Bulacao, Cebu City, covered by Transfer Certificate of Titles Nos. T-89152 and T-89153 of the Registry of Deeds of Cebu City. On January 10, 1985, petitioner and SIHI entered into a lease contract with option to purchase 5 over said two parcels of land, at a monthly rental of Ten Thousand (P10,000.00) pesos for a period of eighteen (18) months, beginning on August 1, 1984 until January 30, 1986. The pertinent portion of the lease contract subject of the dispute reads in part: 4. As part of the consideration of this agreement, the LESSOR hereby grants unto the LESSEE the exclusive right, option and privilege to purchase, within the lease period, the leased premises thereon for the aggregate amount of P1,800,000.00 payable as follows: a. Upon the signing of the Deed of Sale, the LESSEE shall immediately pay P360,000.00. b. The balance of P1,440,000.00 shall be paid in equal installments of P41,425.87 over sixty (60) consecutive months computed with interest at 24% per annum on the diminishing balance; Provided, that the LESSEE shall have the right to accelerate payments at anytime in which event the stipulated interest for the remaining installments shall no longer be imposed. x . . The option shall be exercised by a written notice to the LESSOR at anytime within the option period and the document of sale over the afore-described properties has to be consummated within the month immediately following the month when the LESSEE exercised his option under this contract. 6 On January 7, 1986, or approximately three (3) weeks before the expiration of the lease contract, SIHI notified petitioner of the impending termination of the lease agreement, and of the short period of time left within which he could still validly exercise the option. It likewise requested petitioner to advise them of his decision on the option, on or before January 20, 1986. 7 In a letter dated January 15, 1986, which was received by SIHI on January 29, 1986, petitioner requested for a six-month extension of the lease contract, alleging that he needs ample time to raise sufficient funds in order to exercise the option. To support his request, petitioner averred that he had already made a substantial investment on the property, and had been punctual in paying his monthly rentals. 8 On February 14, 1986, SIHI notified petitioner that his request was disapproved. Nevertheless, it offered to lease the same property to petitioner at the rate of Thirty Thousand (P30,000.00) pesos a month, for a period of one (1) year. It further informed the petitioner of its decision to offer for sale said leased property to the general public. 9 On February 18, 1986, petitioner notified SIHI of his decision to exercise the option to purchase the property and at the same time he made arrangements for the payment of the downpayment thereon in the amount of Three Hundred Sixty Thousand (P360,000.00) pesos. 10 On February 20, 1986, SIHI sent another letter to petitioner, reiterating its previous stand on the latter's offer, stressing that the period within which the option should have been exercised had already lapsed. SIHI asked petitioner to vacate the property within ten (10) days from notice, and to pay rental and penalty due. 11 Hence, on February 28, 1986, a complaint for specific performance and damages 12 was filed by petitioner against SIHI before the Regional Trial Court of Cebu City, to compel the latter to honor its commitment and execute the corresponding deed of sale.

After trial, the court a quo promulgated its decision dated April 1, 1991, the dispositive portion of which reads: In the light of the foregoing considerations, the Court hereby renders judgment in Civil Case No. CEB 4700, ordering the defendant to execute a deed of sale in favor of the plaintiff, covering the parcels of land together with all the improvements thereon, covered by Transfer Certificates of Title Nos. 89152 and 89153 of the Registry of Deeds of Cebu City, in accordance with the lease contract executed on January 10, 1984 between the plaintiff and the defendant, but the purchase price may be by "one shot payment" of P1,800,000.00; and the defendant to pay attorney's fee of P20,000.00. No damages awarded. 13 Not satisfied with the judgment, SIHI elevated the case to the Court of Appeals by way of a petition for review. On September 21, 1995, respondent court rendered its decision, affirming the trial court's judgment, but modified the basis for assessing the purchase price. While respondent court affirmed appellee's option to buy the property, it added that, "the purchase price must be based on the prevailing market price of real property in Bulacao, Cebu City." 14 Baffled by the modification made by respondent court, both parties filed a motion for reconsideration and/or clarification, with petitioner, on one hand, praying that the prevailing market price be the value of the property in February 1986, the time when the sale would have been consummated. SIHI, on the other hand, prayed that the market price of the property be based on the prevailing price index at least 10 years later, that is, 1996. Respondent court conducted further hearing to clarify the matter, but no agreement was reached by the parties. Thus, on April 25, 1996, respondent court promulgated the assailed resolution, which denied both parties' motions, and directed the trial court to conduct further hearings to ascertain the prevailing market value of real properties in Bulacao, Cebu City and fix the value of the property subject of the controversy. 14a Hence, the instant petition for review. The fundamental issue to be resolved is, should petitioner be allowed to exercise the option to purchase the leased property, despite the alleged delay in giving the required notice to private respondent? An option is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract. It binds the party who has given the option, not to enter into the principal contract with any other person during the period designated, and, within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. 15 It is a separate agreement distinct from the contract which the parties may enter into upon the consummation of the option. 16 Considering the circumstances in this case, we find no reason to disturb the findings of respondent court, that petitioner's letter to SIHI, dated January 15, 1986, was fair notice to the latter of the former's intent to exercise the option, despite the request for the extension of the lease contract. As stated in said letter to SIHI, petitioner was requesting for an extension (of the contract) for six months "to allow us to generate sufficient funds in order to exercise our option to buy the subject property". 17 The analysis by the Court of Appeals of the evidence on record and the process by which it arrived at its findings on the basis thereof, impel this Court's assent to said findings. They are consistent with the parties' primary intent, as hereafter discussed, when they executed the lease contract. As respondent court ruled: We hold that the appellee [herein petitioner] acted with honesty and good faith. Verily, We are in accord with the trial court that he should be allowed to exercise his option to purchase the lease property. In fact, SIHI will not be prejudiced. A contrary ruling, however, will definitely cause damage to the appellee, it appearing that he has introduced considerable improvements on the property and has borrowed huge loan from the Technology Resources Center. 17a The contracting parties' primary intent in entering into said lease contract with option to purchase confirms, in our view, the correctness of respondent court's ruling. Analysis and construction, however, should not be limited to the words used in the

contract, as they may not accurately reflect the parties' true intent. The reasonableness of the result obtained, after said analysis, ought likewise to be carefully considered. It is well-settled in both law and jurisprudence, that contracts are the law between the contracting parties and should be fulfilled, if their terms are clear and leave no room for doubt as to the intention of the contracting parties. 18 Further, it is wellsettled that in construing a written agreement, the reason behind and the circumstances surrounding its execution are of paramount importance. Sound construction requires one to be placed mentally in the situation occupied by the parties concerned at the time the writing was executed. Thereby, the intention of the contracting parties could be made to prevail, because their agreement has the force of law between them. 19 Moreover, to ascertain the intent of the parties in a contractual relationship, it is imperative that the various stipulations provided for in the contract be construed together, consistent with the parties' contemporaneous and subsequent acts as regards the execution of the contract. 20 And once the intention of the parties has been ascertained, that element is deemed as an integral part of the contract as though it has been originally expressed in unequivocal terms. As sufficiently established during the trial, SIHI, prior to its negotiation with petitioner, was already beset with financial problems. SIHI was experiencing difficulty in meeting the claims of its creditors. Thus, in order to reprogram the company's financial investment plan and facilitate its rehabilitation and viability, SIHI, being a quasi-banking financial institution, had been placed under the supervision and control of the Central Bank (CB). It was in dire need of liquidating its assets, so to speak, in order to stay afloat financially. Thus, SIHI was compelled to dispose some of its assets, among which is the subject leased property, to generate sufficient funds to augment its badly-depleted financial resources. This then brought about the execution of the lease contract with option to purchase between SIHI and the petitioner. The lease contract provided that to exercise the option, petitioner had to send a letter to SIHI, manifesting his intent to exercise said option within the lease period ending January 30, 1986. However, what petitioner did was to request on January 15, 1986, for a six-month extension of the lease contract, for the alleged purpose of raising funds intended to purchase the property subject of the option. It was only after the request was denied on February 14, 1986, that petitioner notified SIHI of his desire to exercise the option formally. This was by letter dated February 18, 1986. In private respondent's view, there was already a delay of 18 days, fatal to petitioner's cause. But respondent court found the delay neither "substantial" nor "fundamental" and did not amount to a breach that would defeat the intention of the parties when they executed the lease contract with option to purchase. 20a In allowing petitioner to exercise the option, however, both lower courts are in accord in their decision, rationalizing that a contrary ruling would definitely cause damage to the petitioner, as he had the whole place renovated to make the same suitable and conducive for the business he established there. Moreover, judging from the subsequent acts of the parties, it is undeniable that SIHI really intended to dispose of said leased property, which petitioner indubitably intended to buy. SIHI's agreement to enter first into a lease contract with option to purchase with herein petitioner, is a clear proof of its intent to promptly dispose said property although the full financial returns may materialize only in a year's time. Furthermore, its letter dated January 7, 1986, reminding the petitioner of the short period of time left within which to consummate their agreement, clearly showed its desire to sell that property. Also, SIHI's letter dated February 14, 1986 supported the conclusion that it was bent on disposing said property. For this letter made mention of the fact that, "said property is now for sale to the general public". Petitioner's determination to purchase said property is equally indubitable. He introduced permanent improvements on the leased property, demonstrating his intent to acquire dominion in a year's time. To increase his chances of acquiring the property, he secured an P8 Million loan from the Technology Resources Center (TRC), thereby augmenting his capital. He averred that he applied for a loan since he planned to pay the purchase price in one single payment, instead of paying in installment, which would entail the payment of additional interest at the rate of 24% per annum, compared to 73/4% per annum interest for the TRC loan. His letter earlier requesting extension was premised, in fact, on his need for time to secure the needed financing through a TRC loan.

In contractual relations, the law allows the parties reasonable leeway on the terms of their agreement, which is the law between them. 21 Note that by contract SIHI had given petitioner 4 periods: (a) the option to purchase the property for P1,800,000.00 within the lease period, that is, until January 30, 1986; (b) the option to be exercised within the option period by written notice at anytime; (c) the "document of sale . . . to be consummated within the month immediately following the month" when petitioner exercises the option; and (d) the payment in equal installments of the purchase price over a period of 60 months. In our view, petitioner's letter of January 15, 1986 and his formal exercise of the option on February 18, 1986 were within a reasonable time-frame consistent with periods given and the known intent of the parties to the agreement dated January 10, 1985. A contrary view would be harsh and inequituous indeed. In Tuason, Jr., etc. vs. De Asis, 22 this Court opined that "in a contract of lease, if the lessor makes an offer to the lessee to purchase the property on or before the termination of the lease, and the lessee fails to accept or make the purchase on time, the lessee losses the right to buy the property later on the terms and conditions set in the offer." Thus, on one hand, petitioner herein could not insist on buying the said property based on the price agreed upon in the lease agreement, even if his option to purchase it is recognized. On the other hand, SIHI could not take advantage of the situation to increase the selling price of said property by nearly 90% of the original price. Such leap in the price quoted would show an opportunistic intent to exploit the situation as SIHI knew for a fact that petitioner badly needed the property for his business and that he could afford to pay such higher amount after having secured an P8 Million loan from the TRC. If the courts were to allow SIHI to take advantage of the situation, the result would have been an injustice to petitioner, because SIHI would be unjustly enriched at his expense. Courts of law, being also courts of equity, may not countenance such grossly unfair results without doing violence to its solemn obligation to administer fair and equal justice for all. WHEREFORE, the appealed decision of respondent court, insofar as it affirms the judgment of the trial court in granting petitioner the opportunity to exercise the option to purchase the subject property, is hereby AFFIRMED. However the purchase price should be based on the fair market value of real property in Bulacao, Cebu City, as of February 1986, when the contract would have been consummated. Further, petitioner is hereby ordered to pay private respondent SIHI legal interest on the said purchase price beginning February 1986 up to the time it is actually paid, as well as the taxes due on said property, considering that petitioner have enjoyed the beneficial use of said property. The case is hereby remanded to Regional Trial Court of Cebu, Branch 5, for further proceedings to determine promptly the fair market value of said real property as of February 1986, in Bulacao, Cebu City. Costs against private respondent. SO ORDERED. Bellosillo, Puno, Mendoza and Buena, JJ., concur. September 8, 2006 G.R. No. 151217 SPOUSES CESAR R. ROMULO and NENITA S. ROMULO, Petitioners, vs. TINGA, and SPOUSES MOISES P. LAYUG, JR., and FELISARIN LAYUG, Respondents. Tinga, J.: This is an appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Court of Appeals Decision[1] and Resolution[2] in CA-G.R. CV No. 63965. Said Decision reversed and set aside the Decision[3] of the Regional Trial Court (RTC), Branch 258, Paraaque City, which nullified the Deed of Absolute Sale and Contract of Lease executed between herein petitioners and respondents. The following factual antecedents are matters of record. On April 11, 1996, petitioners Spouses Cesar and Nenita Romulo filed a verified Complaint for Cancellation of Title, Annulment of Deed of Absolute Sale and Contract of Lease with Damages against respondents Spouses Moises and Felisarin Layug. The complaint was docketed as Civil Case No. 96-0172 and raffled to Branch 258 of the RTC of Paraaque.[4] Petitioners averred in their complaint that sometime in 1986, they obtained from respondents a loan in the amount of P50,000.00 with a monthly interest of 10%, which subsequently ballooned to P580,292.00. To secure the payment of the

loan, respondents allegedly duped petitioners into signing a Contract of Lease and a Deed of Absolute Sale covering petitioners house and lot located at Phase II, BF Homes, Sucat, Paraaque and covered by Transfer Certificate of Title (TCT) No. S-71528. The Deed of Absolute Sale purportedly facilitated the cancellation of petitioners title on the house and lot and the issuance of TCT No. 20489 in the name of respondents. Thus, petitioners prayed for the nullification of the Deed of Absolute Sale, the contract of lease and TCT No. 20489, and the award of moral and exemplary damages.[5] Respondents denied petitioners allegations. In their Answer,[6] they vouched for the validity of the Deed of Absolute Sale, particularly as having been voluntarily executed by the parties for the purpose of extinguishing petitioners indebtedness to respondents. As consideration of the sale, respondents allegedly paid the amount of P200,000.00 in addition to the writing off of petitioners obligation to them. That they allowed petitioners to occupy the house and lot as lessees thereof was founded on the trust they reposed on petitioners, claimed respondents.[7] Prior to the filing of Civil Case No. 96-0172, respondent Moises Layug, Jr. (Moises) filed Civil Case No. 9422, an action for ejectment, against petitioners to compel the latter to vacate the house and lot allegedly sold by petitioners to Moises and subsequently rented out by him to petitioners. Moises alleged that petitioners violated the terms of the Contract of Lease when the latter failed to pay any rental or exercise their option to repurchase the house and lot and refused to vacate the property despite demand. The Metropolitan Trial Court (MeTC), Branch 77, Paraaque dismissed the complaint for lack of cause of action.[8] The RTC, Branch 257, Paraaque, likewise dismissed Moises appeal based on its finding that the parties did not intend to enter into a lease agreement.[9] The Court of Appeals denied Moises petition for review on the ground o f late filing.[10] Upon elevation to this Court, Moises petition for review on certiorari was denied with finality by this Cou rt.[11] On June 21, 1999, the trial court rendered judgment in favor of petitioners in Civil Case No. 96-0172. The dispositive portion of the decision reads: WHEREFORE, the plaintiffs having been able to prove their claim by preponderance of evidence, judgment is hereby rendered in their favor and against spouses Moises P. Layug and Felisarin Layug whereby the Contract of Lease as well as the Deed of Sale allegedly executed by the herein parties are hereby declared NULL and VOID and of no force and effect and the Register of Deeds of the City of Paraaque is hereby ordered to cancel Transfer Certificate of Title No. 20489 registered in the names of MOISES P. LAYUG married to FELISARIN LAYUG and to issue a new one in the name of Spouses Cesar R. Romulo and Nenita S. Romulo, upon the payment of the required fees by the plaintiffs. Likewise, defendants Spouses Moises P. Layug and Felisarin Layug are hereby ordered to pay jointly and severally Spouses Cesar R. Romulo and Nenita S. Romulo the following, to wit: 1. The amount of P100,000.00 as and by way of moral damages; 2. The amount of P80,000.00 as exemplary damages; 3. The amount of P50,000.00 as and by way of attorneys fees; and 4. The costs of suit. SO ORDERED.[12] Respondents elevated the matter to the Court of Appeals, questioning, among others, the trial courts f inding that the contract between petitioners and respondents was an equitable mortgage.[13] The Court of Appeals reversed and set aside the RTC Decision, mainly on the ground that petitioners failed to present sufficient evidence to prove their allegation that their signatures to the Deed of Absolute Sale were obtained fraudulently. Their motion for reconsideration rebuffed,[14] petitioners filed the instant petition raising the lone issue of whether or not the transaction between the parties constitutes an equitable mortgage. On this issue, the RTC and the Court of Appeals differ in opinion. The trial court based its declaration that an equitable mortgage was intended by the parties on the finding that petitioners remained in possession of the house and lot even after the property was supposedly sold to respondents. The trial court also gave evidentiary weight to the decisions of the MeTC and RTC dismissing the action for ejectment in Civil Case No. 9422, where both courts found that petitioners neither vacated the property nor paid any rental even after the execution of the Deed of Absolute Sale. The Court of Appeals disagreed and declared that an absolute sale was contemplated by the parties based on the express stipulations in the Deed of Absolute Sale and on the acts of ownership by respondents subsequent to its execution.

Whether or not the parties intended an equitable mortgage is a factual issue. As a general rule, factual review is beyond the province of this Court. One of the exceptions to the rule is exemplified by the instant case where the factual findings of the RTC and Court of Appeals are contradictory. That petitioners obtained loans from respondents between 1985 and 1987, which remained unpaid up to the time of the execution of the assailed Deed of Absolute Sale, is established.[15] That petitioners signed the assailed instrument is also not disputed. Indeed, they admitted having signed said document qualifying, however, that they were forced by respondents to execute the same for the purpose of securing their indebtedness to respondents.[16] Respondents, on the other hand, insisted that the parties executed the Deed of Absolute Sale as an honest-to-goodness sales transaction. Respondents, however, admitted further that in addition to the amount of P200,000.00 stipulated in the Deed of Absolute Sale, the parties agreed to write off petitioners loan as consideration of the sale, although this clause was not expressed in the instrument.[17] From respondents admission, it can be gathered that the assailed Deed of Absolute Sale does not reflect the true arrangement of the parties. Now, is petitioners submission that the parties actually agreed to subject the house an d lot as security for their unpaid obligation supported by the evidence? Did the parties execute the assailed Deed of Absolute Sale with the intention of subjecting petitioners house and lot covered by the deed as a mere security for the payment of th eir debt? The form of the instrument cannot prevail over the true intent of the parties as established by the evidence. We have also decreed that in determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by their conduct, words, actions and deeds prior to, during and immediately after execution of the agreement.[18] In order to ascertain the intention of the parties, their contemporaneous and subsequent acts should be considered. Once the intention of the parties has been ascertained, that element is deemed as an integral part of the contract as though it has been originally expressed in unequivocal terms.[19] As such, documentary and parol evidence may be submitted and admitted to prove such intention. And, in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.[20] Between 1985 and 1987, petitioner Nenita Romulo (Nenita) obtained from respondent Felisarin Layug (Felisarin) loans in various amounts totaling around P500,000.00. Being close friends at that time, Felisarin did not require any written instrument to secure payment, other than the title to the house and lot, which Nenita handed to Felisarin sometime in 1988.[21] When respondents demanded payment of the loan, petitioners defaulted. Nevertheless, as admitted by Layug, despite her repeated demands, she allowed petitioners some more time within which to pay their debts.[22] Felisarin claimed that eventually petitioners offered their house and lot as payment for their debt because petitioners no longer had any money.[23] However, even after the execution of the assailed Deed of Absolute Sale, respondents continued to grant petitioners loan accommodations as evidenced by the three promissory notes executed by petitioner Cesar Romulo.[24] Respondents continuing to lend money to petitioners does not make sense if the intention of the parties was really to extinguish petitioners outstanding obligation. The logical and inevitable conclusion is that respondents deemed it wise to formalize a security instrument on petitioners house and lot by executing the Deed of Absolute Sale after realizing that petitioners could no longer fully satisfy their obligation to respondents. At that time, as petitioners were hard-pressed to come up with funds to pay their loan, they were hardly in a position to bargain. The preponderance of evidence shows that they signed knowing that said documents did not express their real intention, and if they did so notwithstanding this, it was due to the urgent necessity of obtaining funds. Necessitous men are not, truly speaking, free men; but to answer a present emergency will submit to any terms that the crafty may impose upon them.[25] The circumstances surrounding the execution of the Deed of Absolute Sale, particularly the fact that respondents continued to extend some loans to petitioners after its execution, precludes the Court from declaring that the parties intended the transfer of the property from one to the other by way of sale. Consistent with the foregoing state of the evidence, Articles 1604 and 1602 of the Civil Code come into play. The articles provide that when the parties to a contract of sale actually intended such contract to secure the payment of an obligation, it shall be presumed to be an equitable mortgage: Art. 1602. The contract shall be presumed to be an equitable mortgage in any of the following cases:

1) When the price of a sale with right to repurchase is unusually inadequate; 2) When the vendor remains in possession as lessee or otherwise; 3) When upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new period is executed; 4) When the vendor binds himself to pay the taxes on the thing sold; 5) When the purchaser retains for himself a part of the purchase price; 6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. (Emphasis supplied.) Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. For the presumption of equitable mortgage to arise, two requisites must be satisfied, namely: that the parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing debt by way of mortgage. Under Article 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Article 1602 be present.[26] To stress, the existence of any one of the conditions under Article 1602, not a concurrence, or an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage.[27] It must be emphasized too, however, that there is no conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage. In fact, it is often a question difficult to resolve and is frequently made to depend on the surrounding circumstances of each case. When in doubt, courts are generally inclined to construe a transaction purporting to be a sale as an equitable mortgage, which involves a lesser transmission of rights and interests over the property in controversy.[28] The Court has not hesitated to declare a purported contract of sale as an equitable mortgage even when only one of the enumerated circumstances under Article 1602 is proved.[29] In the case at bar, petitioners remained in possession of the house and lot even after the execution of the Deed of Absolute Sale. Moreover, they remained in possession of the property for more than the reasonable time that would suggest that petitioners were mere lessees thereof. For one, it took respondents more than five years from the time of the execution of the Deed of Absolute Sale and the Contract of Lease to file the action for ejectment. Within this period, petitioners neither paid any rental nor exercised the option to buy purportedly the leased property from respondents. Incidentally, in the decisions of the MeTC and the RTC in the separate action for ejectment, both lower courts observed that when petitioners were made to sign a blank document, which turned out to be a Contract of Lease of their house and lot, they were of the belief that the blank document would serve only as guaranty for the payment of their obligation to respondents. The claim that petitioners possession of the house and lot was by sheer tolerance of respondents is specious. Respondents could not explain why they allowed petitioners more than five years to look for another place to transfer. These circumstances only support the conclusion that the parties never really intended to transfer title to the property. Under paragraph 2 of Article 1602, where the purported vendor remains in possession of the property subject of the sale and it can be inferred that the true intention of the parties was to secure an existing debt, the transaction shall be deemed an equitable mortgage. Under paragraph 1 of Article 1602, where the purchase price is inadequate, a contract of sale is also presumed to be an equitable mortgage. Based on respondents evidence, petitioners property was valued at P700,000.00 but the assailed Deed of Absolute Sale stated a consideration of only P200,000.00. Contrary to the appellate courts declaration that the inadequacy of the purchase price is not sufficient to set aside the sale, the Court finds the same as clearly indicative of the parties intention to make the property only a collateral security of petitioners debt. The Court is not convinced that petitioners would allow the sale of their residential property for even less than half of its market value. The appellate court ruled that petitioners failed to rebut the presumption of the genuineness and due execution of the questioned Deed of Absolute Sale. Based on the examination of the assailed instrument and the Contract of Lease and the testimonies of the parties, the Court cannot sustain respondents claim that petitioners offered to sell their house and lot in satisfaction of their indebtedness. As observed by the trial court, the Contract of Lease appears to have been signed sometime in November 1988 or before the execution of the Deed of Sale. Respondents were unable to explain why they had leased the property to petitioners before its supposed purchase by respondents. Furthermore, the records disclose that it was only after the institution of the ejectment case did petitioners learn about the cancellation of their title to the property although under the assailed Deed of Absolute Sale, petitioners were obliged to bear the expenses of its execution and registration.

These circumstances lend credence to petitioners claim of the surreptitious manner by which respondents made them sign certain documents without completely disclosing the real import thereof. The Supreme Court is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a just decision of the case.[30] Though petitioners did not raise in issue the appellate courts reversal of the award of damages in their favor, the Court has the discretion to pass upon this matter and determine whether or not there is sufficient justification for the award of damages. The trial court described respondents acts as malevolent, necessitating the award for moral and exemplary damages. An award of moral damages would require certain conditions to be met, to wit: (1) first, there must be an injury, whether physical, mental or psychological, clearly sustained by the claimant; (2) second, there must be a culpable act or omission factually established; (3) third, the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) fourth, the award of damages is predicated on any of the cases stated in Article 2219.[31] However, petitioners are not completely without fault. Had they exercised ordinary diligence in their affairs, petitioners could have avoided executing documents in blank. Respondents wrongful act, although the proximate cause of the injury suffered by petitioners, was mitigated by petitioners own contributory negligence. Hence, the award of moral and exemplary damages must be reduced to one-half of the amounts awarded by the trial court.[32] WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV 63965 are REVERSED and SET ASIDE and the Decision of the Regional Trial Court, Branch 258, Paraaque City in Civil Case No. 960172 is REINSTATED with a MODIFICATION that the award of moral and exemplary damages is REDUCED to P50,000.00 and P40,000.00, respectively. Costs against respondents. SO ORDERED. G.R. No. 85869 November 6, 1992 THE NATIONAL IRRIGATION ADMINISTRATION (NIA), represented by the Project Manager, Magat River MultiPurpose Project, petitioner, vs. ESTANISLAO GAMIT and THE HONORABLE COURT OF APPEALS, respondents. PADILLA, J.: On 23 January 1985, the plaintiff Estanislao Gamit (private respondent herein) filed with the RTC of Roxas, Isabela, Branch XXIII, a complaint 1 against the defendant National Irrigation Administration (petitioner herein) for reformation of contract, recovery of possession and damages, docketed therein as Civil Case No. 4, alleging, among others, as follows: 2. That defendant is in charge of the implementation of the Irrigation Program of the national government to increase food production nationwide, and in pursuance of the policy, the Magat River Multi-Purpose Project was undertaken to provide irrigation in the Cagayan Valley region, particularly in the province of Isabela, funded by a multi-billion loan from the world bank; that as an indispensable component of the project, massive infrastructure improvements such as buildings and the like, were constructed to house the different offices monitoring the actual implementation of the project; 3. That for the purpose above mentioned and sometime on June 5, 1975, herein plaintiff and defendant, thru its Officer-inCharge, Magat River Multi-Purpose Project (MRMP) then with business office at San Mateo, Isabela, after some negotiations were made, entered into a CONTRACT OF LEASE, over plaintiff's urban parcel of land, more particularly described as follows: An undivided portion of twenty five thousand (25,000) square meters, more or less, and forming part of that parcel of land with a total area of thirty thousand and five (30,005) square maters, more or less, embraced in TCT No. T-85689 of the land records of Isabela, under Tax Declaration No. S3-5603, situated at the poblacion (Centro), San Manuel, Isabela, which portion leased is bounded as follows: NORTH: Estanislao Gamit; EAST National Road; SOUTH: Dominador Bullungan; WEST: Dominador Bullagan For a consideration or rental in the sum of ten centavos (P0.10) per square meter, per year for ten (10) years, from date of execution of the instrument, for the use by defendant on which to construct the Administration Building and other facilities for

Division III, Magat River Multi-Purpose Project at San Manuel, Isabela, and other purposes that may be deemed necessary for the operation and maintenance of the system when completed; certified xerox copy of the title is hereto attached as Annex "A" to form part hereof. 4. That in at least three paragraphs, (4, 8, 9) of the contract of lease the defendant surreptitiously inserted, the following stipulations, which are hereby quoted: 4. That should LESSEE decides (sic) to continue utilizing the said portion of twenty five thousand (25.000) square meters, more or less, beyond the ten (10) year period that this contract is in force, then lessee may purchase the property and all rentals paid to lessor shall be considered part of the purchase price (which) shall not exceed twenty five thousand (P25,000.00) Pesos: (Emphasis Supplied) xxx xxx xxx 8. That six (6) months before the expiration of the ten (10) year period, LESSOR shall request LESSEE in writing about the latter's final intention on the herein (property) leased; likewise, LESSEE shall inform LESSOR in writing about LESSEE'S definite intention on the area; failure of parties to make bilateral communication shall be deemed that this contract is in force and effect even after the ten (10) year period, as if LESSOR, his successors, or assigns allowed continued use of the property by LESSEE without any additional compensation whatsoever. (Emphasis Supplied.) 9. That upon payment of the said amount of Twenty Five Thousand (P25,000.00) Pesos, the land owner, Estanislao Gamit shall be deemed to have ceded and conveyed all his rights and interest on the subject property free from all liens and encumbrances in favor of the National Irrigation Administration. (Emphasis Supplies). Certified xerox copy of the contract is hereto attached as Annex "B", to form part hereof. 5. That prior to the signing of the contract of lease as stated in the immediately preceding paragraphs, serious negotiations were made, the first was, when the Municipal Mayor and Chief of Police of the Municipality of San Manuel, Isabela, approached plaintiff in behalf of defendant, to allow the later thru its Project Manager or his duly authorized representatives and equipments to enter into and occupy three (3) hectares or 30,000 square meters of his land on which to establish the Office of Division III, of the Project, and plaintiff and his wife signed a written permit dated April 24, 1975, witnessed by Mayor Paulino A. Domingo and Chief of Police Pedro R. Pascua, which permit was granted "pending the perfection of documents pertinent to a formal lease contract with the right to purchase" to be executed by and between plaintiff and defendant. Certified xerox copy of the permit is hereto attached as Annex "B-1", to form part hereof; That further negotiations followed, and a document denominated as "'AGREEMENT" was prepared by herein defendant for the signature of plaintiff and the latter and his wife signed the same, with one Engr. Antonio A. Ramos, then the Chief of Division III, MRMP, San Manuel, Isabela, signing as an instrumental witness; for reasons known only to the Asst. Project Manager, the document was not however signed by him, for which reason, the contract of lease was not perfected possibly because defendant's Assistant Project Manager wanted to prolong plaintiff's anxiety and the same was aggravated by the latter's deep financial need, which fact is known by the Assistant Project Manager during the negotiations, thereby exercising undue influence or advantage over that of plaintiff, when the contract of lease was finally signed on June 6, 1975. Certified xerox copy of the unperfected agreement is hereto attached as Annex "B-2", to form part hereof. 6. That contemporaneously or subsequently thereafter and sometime on August 27, 1975 or thereabout, the whole rental of the leased premises was offered to be paid by the defendant and the plaintiff being then in need of cash, as he was then in financial distress, accepted the offer, and finally received the whole amount, as evidenced by a certified xerox copy of the corresponding voucher, hereto attached as Annex "C", to form part hereof. 7. That only recently, in a letter dated November 23, 1984, sent by the Assistant Project Manager to the plaintiff, herein defendant notified the former, of the election to purchase the leased premises, allegedly in accordance with stipulation No. 8 quoted above, and contained in the contract of lease (Annex "B"). Certified xerox copy of the same is hereto attached as Annex "D", to form part hereof. 8. That the contract of lease entered into, by and between herein plaintiff and defendant does not express the real agreement or intention of the parties, as there was error or mistake of fact on the part of plaintiff, aggravated by his state of financial distress at the time the contract was signed, and herein defendant acted fraudulently or inequitably, exercising undue

influence over plaintiff on account of the latter's financial distress, in such a way that their real agreement was not reflected or expressed in the contract of lease signed by the parties. 9. That the real agreement or intention of the parties was only for the lease of the twenty five (25,000) thousand square meters by defendant at the rate of P0.10 centavos per square meter, for a period of ten (10) years from date of execution with the right of defendant to purchase the area upon the termination of the lease, on a price certain or consideration to be negotiated and agreed upon, by and between the parties after the lapse of the ten (10) year period; 10. That it was not the real agreement or intention of the parties, at least that of herein plaintiff, to have the rentals paid as forming part of the purchase price later to be negotiated or agreed upon, much less was it their intention at least on the part of herein plaintiff, that the price shall, not exceed P25,000.00 (see stipulation No. 4, Lease of Contract), otherwise, there will be a gross inadequacy of the purchase price, enough to shock the conscience of man and that of the court; that it was not also the intention or agreement of the parties, at least that of herein plaintiff, that in case the lease contract is not renewed after the lapse of the ten (10) year period, for failure of the parties to make bilateral communication, the lessor or his successors or assigns are deemed to have allowed continued use of the land in suit without any additional compensation whatsoever (see stipulation No. 8, contract of lease) and neither was it the true agreement or real intention the parties, at least on the part of herein plaintiff, that upon payment of the rental amount of P25,000.00, herein plaintiff shall be deemed to have conveyed and ceded all his rights and interest on the subject property, in favor of herein defendant. (see stipulation No. 9) 11. That herein defendant acted fraudulently and inequitably, taking advantage of the financial distress of herein plaintiff, when it caused the unlawful insertion of the stipulation contained in paragraphs 4, 8 and 9 quoted above, in the contract of lease, and the same are all contrary to law and void ab-initio, because the fixing of the price of the land to be purchased can never be left to the discretion or will of one of the contracting parties; and in this case, it was defendant alone who determined the price and if this is so, then the validity or compliance of the contract can not be demanded by herein defendant, for the reason that a contract of sale, is essentially bilateral in character; 12. That evidently, the contract as drafted and prepared by herein defendant for the signature of herein plaintiff is a contract commonly known as ADHESION CONTRACT, which is one where one party (plaintiff herein) merely signs carefully prepared contracts of big companies, such as contracts of insurance, construction and the like; as in the case of herein defendant where the project involves multi-billion contracts funded from the World Bank, thus, the same should be strictly interpreted against defendant, and liberally in favor of herein plaintiff, because the latter was virtually helpless to bargain for better terms on account of his financial need at the time; 13. That the fair and reasonable price or market value of the land in suit which is an urban land located at the Poblacion or Centro of the town of San Manuel, this province, is no less than Fifty Pesos (50.00) per square meter, and plaintiff makes this offer, subject to the acceptance of herein defendant; 14. That as agreed upon, the area to be leased is only twenty five (25.000) thousand square meters, as evidenced by the encumbrance registered at the back of TCT No. T-85689, in the name of plaintiff leaving a portion of five (5,000) thousand square meters, as free from the lien and encumbrance; 15. That after the lease contract was executed and registered, herein defendant fenced the area leased, but in the process, the latter stealthily and surreptitiously expanded its occupation and it included the remaining portion of five (5,000) thousand square meters, unencumbered, as evidenced by a relocation survey conducted by one Geodetic Engineer Apolinar P. Alvarez in the premises, a blue print copy of the sketch map is hereto attached as Annex "E" to form part hereof, and there xerox copy of the letter of plaintiff dated August 27, 1984, addressed to the Manager of Division III, Magat River Multi-Purpose Project, San Manuel, Isabela, requesting for a relocation of the leased premises, is hereto attached as Annex "E-1", to form part hereof; 16. That the encroached area of five (5,000) thousand square meters which is irrigated, can be easily planted to palay and would yield an average of no less than one (100) hundred cavans of palay at 46 kilos per cavan, per crop, for three (3) croppings a year, with a selling price of P3.50 per kilo;

17. That herein plaintiff failed to realize the expected income stated in the immediately preceding paragraph due to the unlawful occupation of the area by defendant since the year 1975 to the present, and despite repeated demands, the defendant refuses to deliver the possession of the encroached portion of 5,000 square meters to the plaintiff, with accounting of its corresponding produce, up to the present; however, should defendant desires to purchase the remaining portion of 5,000 square meters, plaintiff offers a price of no less than P50.00 per square meter which is the fair and reasonable market value of the land; 18. That due to the unlawful, inequitable and malicious actuations of herein defendant, plaintiff was forced to engage the services of counsel for a contingent fee of 30% of whatever is due plaintiff, plus P300.00 as appearance fee, for the protection, respect, and preservation of his rights and interests in the premises; 19. That likewise, for fraudulent and inequitable acts committed by defendant, plaintiff is entitled to actual or compensatory damages representing unrealized income of the 5,000 square meters encroached portion, which is estimated to be no less that 25 cavans of palay (25% of 100 as rental per crop, for three (3) croppings a year), or a total of 75 cavans per year and/or a grand total of 750 cavans of palay at 46 kilos per cavan for the (10) years, at the current price of P3.50 per kilo; and entitled to nominal or temperate damages in the sum of P30,000.00 plus moral and exemplary damages of no less that P60,000.00 for the public good; WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court that judgment be rendered in favor of your plaintiff and against herein defendant by: 1. Ordering, that the contract of lease with right to purchase (Annex "B") be reformed, so that the real and true agreement or intention of the parties be reflected and/or expressed therein; 2. In the alternative, should the defendant pursue to BUY the land in suit (30,000 square meters) at a price certain agreed upon by the parties after serious negotiations at the rate of P50.00 per square meter, then the necessary and proper document be drawn and prepared, under the strict supervision of the Court, and the corresponding purchase price or compensation to be paid by defendant, be deposited with the court under custodia legis; 3. Ordering the defendant to pay plaintiff, the unrealized income or profit, plaintiff suffered, by virtue of the unlawful occupation by defendant of the remaining portion of 5,000 square meters from 1975 to the present or until possession is finally restored; 4. Ordering defendant to pay plaintiff, the sum of P30,000.00, by way of nominal or temperate damages and the sum of P60,000.00, by way of moral and exemplary damages, for the public good, plus attorney's fees on a contingent basis of 30% depending on the amount finally adjudicated in favor of plaintiff, plus appearance fee of P3000.00 when the case is called for hearing or for any other purpose; 5. Ordering the parties to strictly abide by, and comply with their commitments in the documents that may be executed in the premises; 6. If for any reason, the parties can not agree on reasonable terms for the continuation of their relationship and the lease contract ordered terminated, and/or, should the defendant elects not to purchase the whole 30,000 square meters, defendant be ordered to deliver the possession of the land in suit to the plaintiff, and the defendant allowed to remove the infrastructure improvement introduced on the land, with right of retention to the former; In due time, the defendant filed its answer 2 alleging, inter alia, as follows: 2. That defendant admits the allegations in paragraph 2 of the complaint; 3. That defendant admits the allegations in paragraph 3 of the complaint that a Contract of Lease With Right to Purchase was entered into between the parties on June 6, 1975, but it specifically denies the rest of the allegation therein, more specifically that plaintiff's land is urban land, the fact of the matter being that it is riceland at the time NIA took possession of the same;

4. That defendant specifically denies the material allegations in paragraph 4 of the complaint alleging that stipulations No. 4, 8 and 9 of the Contract of Lease with Right to Purchase was surreptitiously inserted it appearing plaintiff is an intelligent person who knows English, and that his wife, Estilita Santos, is likewise a signatory to the document; 5. That defendant admits the allegations in paragraph 5 of the compaint concerning plaintiff's issuance of a permit to enter the property in question on April 24, 1975, but it specifically denies the rest of the allegations therein, for being without basis in fact and in law; 6. That defendant admits the allegations in paragraph 6 of the complaint whereby plaintiff acknowledged receipt of the amount of P25,000.00 as payment for the land in question, but specifically denies the rest of the allegations therein for being self-serving and baseless conclusions of fact, it appearing the delay in the payment for such property was due to plaintiff's fault, who was not paid until he was able to register the property in his own name; 7. That defendant admits the material allegations in paragraph 7 of the complaint; 8. That defendant specifically denies the allegations in paragraphs 8 and 9 of the complaint for being self-serving, without basis in fact, and for reasons to be stated in the Special and Affirmative defenses; 9. That defendant specifically denies the allegations in paragraphs 10, 11, 12 and 13, of the complaint for being without basis in law and in fact; 10. That defendant admits the allegations in paragraph 14 of the complaint that 25,000 square meters was the subject of the Contract of Lease with Right of Repurchase, with the qualification that the remaining 5,000 square meters was intended to be donated by the plaintiff to defendant upon the execution of a Deed of Sale; 11. That defendant specifically denies the allegations in paragraph 15 of the complaint for reasons stated in the preceding paragraph; 12. That defendant specifically denies the allegations in paragraphs 16 of the complaint for being unwarranted conclusions of fact; 13. That defendant specifically denies the allegations in paragraphs 17, 18 and 19 of the complaint for being self-serving, speculative and without basis in fact; and by way of SPECIAL AND AFFIRMATIVE DEFENSES defendant respectfully alleges: 14. That it repleads and incorporates the foregoing as integral part hereof; 15. That the contract entered into on June 6, 1975 is the law between the parties and the same should be complied with in good faith (Art. 1159, Civil Code); 16. That there could not have been any fraud or mistake in the execution of said contract because plaintiff appears to know English and his wife is a signatory to the instrument; besides, public officials are entitled to the presumption of regularity in the performance of their official duties; 17. That from the appearance of their signatures, plaintiff and his wife are not ignorant or illiterate, otherwise they would have merely used their thumbmarks; 18. That as public entity, defendant has not been motivated by any other consideration other than to reflect the true intentions of the parties in the instrument of June 6, 1975;

19. That money claims for damages against the State should have been first had before the Commission on Audit (Carabao Inc. vs. Agricultural Productivity Commission, 35 SCRA 224 [1970]; Commissioner of Public Highways vs. San Diego, 31 SCRA 616 [1970]; 20. That there was no exhaustion of administrative remedies, and therefore, the instant suit does not state a valid cause of action (Abe-Abe vs. Manta, 90 SCRA 524 [1979]). The plaintiff seasonably filed a reply 3 to the defendant's answer, after which the case was set for pre-trial. After the pre-trial, the court a quo issued on 4 March 1986 an order 4 incorporating therein the facts admitted by the parties during the pre-trial, and stating therein that: The parties agreed that the issue in this case is only a question of law because it involved the interpretation of the contract between the parties whether it is an absolute sale or a contract of lease only. That there is no genuine issue of material fact on the basis of which the court should try the case on the merits and require presentation of evidence to prove such issue of material fact. As there is no genuine issue of material fact this case could be decided by way of summary judgment pursuant to Sec. 3, Rule 20 of the Rules of Court which provides as follows: Sec. 3. Judgment on the pleadings and summary judgment at pre-trial. If at the pre-trial the court finds that facts exist upon which a judgment on the pleadings or a summary judgment may be made, it may render judgment on the pleadings or a summary judgment as justice may require. Hence, the court a quo, without conducting a trial on the merits of the case, rendered on 20 March 1986 a decision 5 interpreting the contract between the parties as a contract of lease with the right to purchase. Thus, the trial court held: That the issue in this case, is a question of law not a question of fact because it involved the interpretation of the contract between the parties only. Therefore, there is no genuine issue of material fact to be determined by the court in a trial on the merits and the case may be decided by way of summary judgment under Sec. 3, Rule 20 of the Rules of Court The pre-trial order was furnished to the parties giving them reasonable period of time to file any objection if any as mandated by Sec. 4 of Rule 20 of the Rules of Court to which the parties did not submit or file any pleading for the correction or amendment of the pre-trial order. With respect to the interpretation of the contract between the parties sought to be reformed in this case whether or not the contract is a lease contract or a contract of sale, there are terms and conditions of the agreement which maybe very pertinent and determinative of the nature of the contract entered into by the parties to wit: 1. That the contract is denominated as contract of lease with the right to purchase and not a deed of sale; 2. That the contract stipulated a period of ten (10) years from June 6, 1975 the date when it was executed to June 6, 1985; 3. That the defendant has an option to buy the property. The parties are not ordinary parties to a contract and the court is of the opinion, that they intended there contract to be a contract of lease not sale. If it were otherwise, the party could have denominated their contract a deed of sale not a contract of lease with right of purchase. If the parties intended to execute a contract of sale over the two and one-half hectares they should have executed a deed of sale and not a contract of lease. The plaintiff much less the defendant could not claim ignorance of the contract executed by them because the latter is represented by a battery of corporate counsel aside from the office of the Solicitor General and a project Manager whose educational qualification is above an ordinary citizen or individual. The court cannot therefore sustain the contention of the defendant that the contract entered into is that of sale and hereby holds that it is a lease contract with the right to purchase not sale. The mere fact that there is a period agreed upon by the parties which is ten (10) years from June 6, 1975 to June 6, 1985 clearly indicate that the contract between them is a lease

contract not sale. A contract of sale does not have any period because it is final and absolute. Likewise, the contract cannot be deemed to be that of sale because the defendant is given the option to buy and if the latter chooses to buy the land in question the price should be that which has already been paid the plaintiff as the consideration of the lease which was paid in advance in the amount of P25,000.00 The option to buy is not embodied in a contract of sale but it is a term which maybe agreed upon in a contract of lease. The agreement of the parties to be the P25,000.00 paid in full to the plaintiff to the purchase price of the two and one-half hectares however, cannot be considered as the consideration for purposes of the option to buy of the defendant for the reason that the said amount was paid to the plaintiff as rentals for the use of the property during the period of ten (10) years when the option to buy of the defendant is not yet being exercised by the latter otherwise it will be considered as pactum commissorium which in the eyes of the law is illegal per se. To hold otherwise, would deprived the plaintiff the reasonable rentals of the two and one-half hectares during the duration of the lease contract because then the P25,000.00 would be considered as advance payment of the land. . . . xxx xxx xxx . . . Hence, there is no need to reform the agreement. First, because it has already expired and second, the contract is very clear that it is only a contract of lease with option or right to purchase. However, the agreement or stipulation that should the defendant exercise its option to buy the amount of P25,000.00 paid as rental should be considered null and void as if there is no such agreement between the parties for it being illegal. Dissatisfied, the defendant appealed to the Court of Appeals, where it was docketed as CA-G.R. No. CV No. 11538. On 14 November 1988, the Court of Appeals * promulgated a decision 6 affirming with modification the decision of the trial court, the dispositive portion of which reads: WHEREFORE, the judgment appealed from is AFFIRMED with the following modifications: 1) That in case the defendant would exercise its option to buy under the contract, the total purchase price of the two and onehalf hectares is P25,000.00; and 2) The amount of attorney's fees is reduced to P30,000.00. SO ORDERED. Hence, the present petition for review on certiorari of the decision of the Court of Appeals, the petitioner NIA formulating for resolution the following ISSUES: I. WHETHER OR NOT THE COURT OF APPEALS HAS PROPERLY INTERPRETED THE CONTRACT. II. WHETHER OR NOT THE STIPULATION IN THE CONTRACT THAT RENTALS PAID SHALL BE CONSIDERED PART OF THE PURCHASE PRICE IS NULL AND VOID, BEING PACTUM COMMISSORIUM. III. WHETHER OR NOT THE COURT OF APPEALS ERRED IN AWARDING DAMAGES AND ATTORNEY'S FEES. " A contract", according to Article 1305 of the Civil Code, "is a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service." Once the minds of the contracting parties meet, a valid contract exists, whether it is reduced to writing or not. And, when the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement, except when it fails to express the true intent and agreement of the parties thereto, 7 in which case, one of the parties may bring an action for the reformation of the instrument to the end that such true intention may be expressed. 8 Equity orders the reformation of an instrument in order that the true intention of the contracting parties may be expressed. The courts do not attempt to make another contract for the parties. The rationale of the doctrine of reformation is that it would be unjust and inequitable to allow the enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of the parties. The rigor of the legalistic rule that a written instrument should be the final and inflexible criterion and measure of the rights and obligations of the contracting parties is thus tempered, to forestall the effect of mistake, fraud, inequitable conduct or accident. 9

In order that an action for reformation of instrument as provided in Article 1359 of the Civil Code may prosper, the following requisites must concur: (1) there must have been a meeting of the minds of the parties to the contract; (2) the instrument does not express the true intention of the parties; and (3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct or accident. A perusal of the complaint at bar and the relief prayed for therein shows that this is clearly a case for reformation of instrument under Articles 1359 and 1362 10 of the Civil Code of the Philippines. Thus, the complaint alleges: 8. That the contract of lease entered into, by and between herein plaintiff and defendant does not express the real agreement or intention of the parties, as there was error or mistake of fact on the part of plaintiff, aggravated by his state of financial distress at the time the contract was signed, and herein defendant acted fraudulently or inequitably, exercising undue influence over plaintiff on account of the latter's financial distress, in such a way that their real agreement was not reflected or expressed in the contract of lease signed by the parties. 9. That the real agreement or intention of the parties was only for the lease of the twenty five (25,000) thousand square meters, by defendant at the rate of P0.10 centavos per square meter, for a period of ten (10) years from date of execution with the right of defendant to purchase the are upon the termination of the lease, on a price certain or consideration to be negotiated and agreed upon, by and between the parties after the lapse of the ten (10) year period; 10. That it was not the real agreement or intention of the parties, at least that of herein plaintiff, to have the rentals paid as forming part of the purchase price later to be negotiated or agreed upon, much less was it their intention at last on the part of herein plaintiff, that the price shall not exceed P25,000.00 (see stipulation No. 4, Lease of Contract), otherwise, there will be a gross inadequacy of the purchase price, enough to shock the conscience of man and that of the court; that it was not also the intention or agreement of the parties, at least that of herein plaintiff, that in case the lease contract is not renewed after the lapse of the ten (10) year period, for failure of the parties to make bilateral communication, the lessor or his successors or assigns are deemed to have allowed continued use of the land in suit without any additional compensation whatsoever (see stipulation No. 8, contract of lease) and neither was it the true agreement or real intention of the parties, at least on the part of herein plaintiff, that upon payment of the rental amount of P25,000.00, herein plaintiff shall be deemed to have conveyed and ceded all his rights and interest on the subject property, in favor of herein defendant. (see stipulation No. 9); 11. That herein defendant acted fraudulently and inequitably, taking advantage of the financial distress of herein plaintiff, when it caused the unlawful insertion of the stipulation contained in paragraphs 4, 8 and 9 quoted above, in the contract of lease, and the same are all contrary to law and void ab initio, because the fixing of the price of the land to be purchased can never be left to the discretion or will of one of the contracting parties; and in this case, it was defendant alone who determined the price and if this is so, then the validity or compliance of the contract can not be demanded by herein defendant, for the reason that contract of sale, is essentially bilateral in character;" and prays, among others, as follows: 1. Ordering, that the contract of lease with right to purchase (Annex "B") be reformed, so that the real and true agreement or intention of the parties be reflected and/or expressed therein; Otherwise stated, the complaint at bar alleged that the contract of lease with right to purchase does not express the true intention and agreement of thej parties thereto due to mistake on the part of the plaintiff (private respondent) and fraud on the part of the defendant (petitioner), i.e., by unlawfully inserting the stipulations contained in paragraphs 4, 8 and 9 in said contract of lease. As a general rule, parol evidence is not admissible for the purpose of varying the terms of a contract. However, when the issue that a contract does not express the intention of the parties and the proper foundation is laid therefor as in the present case the court should hear the evidence for the purpose of ascertaining the true intention of the parties. 11 From the foregoing premises, we hold that the trial court erred in holding that the issue in this case is a question of law and not a question of fact because it merely involves the interpretation of the contract between the parties. The lower court erred in not conducting a trial for the purpose of determining the true intention of the parties. It failed to appreciate the distinction

between interpretation and reformation of contracts. While the aim in interpretation of contracts is to ascertain the true intention of the parties, interpretation is not, however, equivalent to reformation of contracts. "Interpretation" is the act of making intelligible what was before not understood, ambiguous, or not obvious. It is a method by which the meaning of language is ascertained. 12 The "interpretation" of a contract is the determination of the meaning attached to the words written or spoken which make the contract. 13 On the other hand, "reformation" is that remedy in equity by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties. 14 In granting reformation, therefore, equity is not really making a new contract for the parties, but is confirming and perpetuating the real contract between the parties which, under the technical rules of law, could not be enforced but for such reformation. 15 As aptly observes by the Code Commission, the rational of the doctrine is that it would be unjust and inequitable to allow the enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of the parties. 16 Since the compaint in the case at bar raises the issue that the contract of lease does not express the true intention or agreement of the parties due to mistake on the part of the plaintiff (private respondent) and fraud on the part of the defendant (petitioner), the court a quo should have conducted a trial and received the evidence of the parties for the purpose of ascertaining the true intention of the parties when they executed the instrument in question. Summary judgment can be resorted to only where there are no question of fact in issue or where the material allegations of the pleadings are not disputed. 17 A cursory reading of the pleadings in this case shows that there is a genuine issue or material controversy raised therein. Hence, summary judgment is not proper. WHEREFORE, the decision of the trial court dated 20 March 1986 as well as the decision of the Court of Appeals dated 14 November 1988 are hereby SET ASIDE and the case should be, as it is hereby, REMANDED to the court of origin for further proceedings in accordance with this decision. Without costs. SO ORDERED. Cruz, Grio-Aquino and Bellosillo, JJ., concur. Medialdea, J., is on leave. G.R. No. 83086 June 19, 1991 REYNALDO C. HONRADO, JR., petitioner, vs. COURT OF APPEALS and JARDINE-MANILA FINANCE, INC., respondent. FERNAN, C.J.:p In this petition for review on certiorari, petitioner Reynaldo C. Honrado, Jr. seeks the reversal of the decision of the Court of Appeals dated August 5, 1987 1 which affirmed the decision dated January 22, 1986 of the Regional Trial Court, Branch CXL at Makati, Metro Manila. The dispositive portion of the affirmed decision reads as follows: WHEREFORE, judgment is hereby rendered ordering defendant Reynaldo C. Honrado, Jr., to pay plaintiff MB Finance, formerly Jardine-Manila Finance Corporation, as follows: 1. P81,325.05, of which P40,769.00 representing balance of the principal amount due shall earn interest of 14% per annum from January 1984; 2. P4,076.00 as liquidated damages; 3. P6,115.35 as attorney's fees; and 4. The costs of suit. 2 The factual background of this case as found by the trial court and affirmed by the Court of Appeals is as follows:

On August 21, 1978, Hadd Construction and Trading Corporation (HCTC for brevity) purchased on installment basis a Toyota Corolla Hardtop, 2 Door, 1978 Model with Engine No. 3K-7515608, Serial No. KE 35-915409, Plate No. B-YE-290 from Cressida Sales Corporation (Cressida for brevity). HCTC represented by petitioner Reynaldo C. Honrado, Jr. as president, executed a promissory note in favor of Cressida, in the amount of P49,120.20, payable at the rate of P1,364.45 a month for thirty six (36) months beginning September 25, 1978 and every 25th day of the month thereafter until full payment. In said promissory note, HCTC agreed to a waiver of formal demand and presentment as well as notices of protest and dishonor, among others. Petitioner Honrado signed the promissory note a second time as co-maker of HCTC. 3 A chattel mortgage on the motor vehicle was also executed by HCTC in favor of Cressida. On September 4, 1978, Cressida executed a deed of assignment of the promissory note with warranty of soundness in favor of Jardine-Manila Finance, Inc. for and in consideration of P30,985.54. This was executed with HCTC's conformity, represented again by petitioner as its president. Petitioner Honrado likewise signed this deed of assignment as co-maker. 4 For failure of HCTC to pay the monthly amortization as stipulated in the promissory note, private respondent Jardine-Manila Finance, Inc. filed on May 22, 1979 an action for replevin and damages with the Regional Trial Court of Makati, Branch CXL docketed as Civil Case No. 2096, praying for the seizure and delivery of the questioned motor vehicle to private respondent, with alternative prayer, that in the event the normal delivery of the motor vehicle cannot be effected, judgment be rendered ordering HCTC to pay P41,011.34 with 14% interest per annum from the date the obligation became due and demandable until fully paid. Private respondent impleaded petitioner Reynaldo Honrado, Jr. as party-defendant on the contention that he signed the documents as co-maker. After an answer with compulsory counterclaim was filed on November 7, 1981 by herein petitioner as defendant therein, the case was thereafter set for pre-trial conference. On September 14, 1983, private respondent informed the trial court that it was waiving the recovery of the motor vehicle and chose to pursue instead its alternative prayer considering that since the filing of the complaint, it has not been able to recover said motor vehicle, and that even if recovered, its current value would not allegedly be commensurate to the amount of P41,011.34. On the same day, private respondent moved to dismiss the case against HCTC without prejudice on the ground that summons could not be served on said defendant corporation since it was no longer holding office at its given address and its present address could not be ascertained. This motion was granted by the trial court on October 3, 1983. In due time, the trial court rendered the assailed decision against petitioner who seasonably appealed to the Court of Appeals. On August 5, 1987, the Court of Appeals promulgated its decision affirming that of the trial court. Hence the present recourse of petitioner. To support his prayer for reversal of the appellate court's decision, petitioner argues that he signed the promissory note and deed of chattel mortgage in his official capacity as president of HCTC only. He never intended to sign these documents as comaker. Thus, petitioner in his Memorandum raises the following issues: 1) WAS PRIVATE RESPONDENT CORRECT IN ITS CONTENTION THAT PETITIONER WAS A CO-MAKER OF HCTC IN THE EXECUTION OF THE PROMISSORY NOTE AND DEED OF CHATTEL MORTGAGE IN QUESTION? 2) WAS THE COURT OF APPEALS CORRECT IN ITS INTERPRETATION OF SUBJECT PROMISSORY NOTE AND DEED OF CHATTEL MORTGAGE IN FAVOR OF PRIVATE RESPONDENT AND AGAINST PETITIONER? 5 On the first issue, petitioner Honrado vehemently denies any liability as co-maker of HCTC on the ground that the body of the documents in question, namely, the promissory note and deed of chattel mortgage, indicates that the contract was between HCTC and Cressida only. In addition, petitioner cites the testimony of Mr. George Caruncho, the sales agent of Cressida, who stated that petitioner was asked to sign these documents in his official capacity as president of HCTC.

We find no merit in the above contention. Petitioner Honrado cannot plead that he signed these documents in his official capacity only as president of HCTC and not as co-maker with HCTC. The documents in question, including the deed of assignment which contains petitioner's signatures as co-maker, whose genuineness and due execution were admitted by petitioner, clearly indicate otherwise. As stated by respondent Court of Appeals: The promissory note (Exhibit "A") clearly shows on its face that the appellant signed the same in his capacity as President of the Hadd Construction & Trading Corp. and again as co-maker in his private capacity (Exhibits "A-2" & "A-3"). Appellant also signed the Deed of Chattel Mortgage and the Affidavit of Good Faith four (4) times; twice as President and twice as co-maker (Exhibit "B"). And the appellant lastly signed his conformity to the Deed of Assignment (Exhibit "C") as president and again as co-maker. From the above facts, petitioner, by signing these documents several times as co-maker, is presumed to be aware of the consequences of his actions. Considering that petitioner Honrado is of age and a businessman, holding the highest position in Hadd Construction Trading Corporation, he is presumed to have acted with due care, and to have signed the documents in question with full knowledge of its contents as well as the attendant obligations and responsibilities. As aptly observed by the trial court: . . . defendant Honrado is presumed to have intended the ordinary consequences of his voluntary act and taken ordinary care of his concerns. When defendant signed eight times on three documents, and always as president and as co-maker, it is presumed that he had exercised care in verifying his involvement in the transaction, considering his age, business life, intelligence and the fact that he occupied the highest office in the corporation. 6 Furthermore, there is no evidence of fraud. Petitioner on cross-examination testified as follows: Q At the left hand margin of the promissory note there appears a signature over the name Reynaldo C. Honrado Jr., President, Hadd Construction and Trading Corp. Will you kindly tell us if this is your signature? A Yes, sir. xxx xxx xxx Q Also, at the right hand margin of the promissory note there appears a signature above the typewritten name Reynaldo C. Honrado, Jr., co-maker, is this your signature? A Yes, sir, that is my signature. 7 Since petitioner Honrado did not question and in fact admitted the genuineness and due execution of these documents, including the genuineness of his signatures, then these documents must be given legal effects. The testimony of the sales agent, Mr. Caruncho, can not change the legal effect of these documents. Granting that he told petitioner to sign these documents in his official capacity as president of HCTC the mere fact that petitioner also signed voluntarily as co-maker proves his participation in the transactions as a co-maker. Furthermore, Mr. Caruncho testified that when petitioner signed these documents, all the type-written words already appeared therein. On the matter of interpretation of contracts, it is basic and fundamental that if the terms of the contract are clear, the literal meaning of the stipulation shall control. 8 The intention of the parties to a contract must be determined from the contract itself. When petitioner Honrado signed several times on these documents as president of HCTC and as co-maker, there is no other interpretation but to conclusively presume that he bound himself also as co-maker. He cannot therefore renege on the obligations and liabilities attached to a co-maker. When the terms of a contract are clear and do not leave room for doubt as to the intention of the contracting parties, it is not necessary to interpret the same, the literal meaning of its clauses should be followed. 9 The promissory note clearly stipulates a solidary obligation as shown by the following clause "For value received I/We jointly and severally promised to pay Cressida Motor Sales Corp. . . . Signed: Hadd Construction & Trading Corporation by Reynaldo

C. Honrado, Jr., President and Reynaldo C. Honrado, Jr., Co-maker". In the case of Parot vs. Gemora, 10 this Court had occasion to state: Where a promissory note is signed by two or more persons promissing to pay the amount of the said note juntos o separadamente, such co-makers are individually liable for the payment of the full amount of the obligation of such contract. Therefore, petitioner Honrado is solidarily liable to pay the full amount of the obligation as stipulated in the promissory note to which private respondent is entitled. However, the award of P81,325.00 based on the Statement of Account as of December 10, 1983, 11 prepared by private respondent includes other charges aside from the principal obligation. These charges have not been satisfactorily proved during the trial. Moreover, a careful examination of the records of the case failed to support these charges. The records are bereft of any evidence to show how these charges were computed nor is there an adequate showing that private respondent is entitled thereto. A mere mention of the outstanding obligation of petitioner in the amount of P81,747.05 as of December 10, 1985 in the testimony of Alfonso Flores, private respondent's manager for collection, 12 is not sufficient without proof presented before the court of the expenses and other charges imputed to petitioner. Thus, in the interest of justice and equity, petitioner should be liable only for the outstanding balance based on the promissory note in the amount of P40,769.00. This is computed by deducting the total payments equivalent to four (4) monthly installments made by HCTC in the amount of P8,351.20 from the principal amount of the promissory note of P49,120.20. In addition, this amount of P40,769.00 shall earn interest at the rate of 14% per annum to be computed from March 10, 1979 when the total amount of the principal obligation became due and demandable 13 until actual payment. The award of 10% liquidated damages and 15% attorney's fees based on the principal obligation is found to be equitable. WHEREFORE, the assailed decision is hereby AFFIRMED, with modification as indicated below, ordering petitioner Honrado to pay private respondent MB Finance, formerly Jardine-Manila Finance Corporation as follows: 1) P40,769.00 with 14 % interest per annum from March 10, 1979 until actual payment; 2) P4,076.90 as liquidated damages; 3) P6,115.35 as attorney's fees; and 4) The costs of the suit. SO ORDERED. Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur. [G.R. No. 64143, February 28, 1986] PREMIER INSURANCE & SURETY CORPORATION, PETITIONER, VS. HON. INTERMEDIATE APPELLATE COURT AND MAURO M. CASTRO, RESPONDENTS. GUTIERREZ, JR., J.: This is a petition to review an amended decision of the Court of Appeals, now Intermediate Appellate Court, insofar as it declared the private respondent not jointly and severally liable with Benjamin R. Sarmiento to the petitioner under an agreement and statement of warranties executed in connection with the sale of a parcel of land. The property purchased by the petitioner is a 17,121 square meter lot in Ibayo, Paraaque covered by Transfer Certificate of Title No. 254170 in the name of Benjamin R. Sarmiento. The lot was declared for taxation purposes and covered by a certificate of payment of real property taxes. There was also a subdivision plan and a vicinity map of the property. Respondent Castro handled the sale for the registered owner. When the petitioner's board of directors resolved to buy the property for P22.00 a square meter, it imposed a condition that the location and vicinity plans would be verified by a reputable surveyor and the legal papers pertaining to the property should be verified to be genuine, true, and correct. The petitioner's board of directors authorized its treasurer, Mr. Manuel Chua to act for the corporation in negotiating and consummating the sale. The petitioner also engaged the services of Honorato R. Sta. Maria, a geodetic engineer and surveyor, for the purpose of verifying the ownership and title of the land and identifying and relocating the property.

While the corporation's engineer-surveyor was conducting his verification, respondent Castro submitted to it a deed of absolute sale executed by Benjamin Sarmiento conveying to the petitioner the subject parcel of land. Manuel Chua signed the deed in behalf of the petitioner but it was agreed that the purchase price would be paid only upon receipt of the full report of Geodetic Engineer Sta. Maria. The sale was registered and a transfer certificate of title issued in the name of the petitioner. When the transfer certificate of title and the other papers were delivered to the petitioner, respondent Castro stated in writing that it was understood that the surveyor's report would be submitted in a day's time. He also asked for an acknowledgment that, notwithstanding the sale and transfer, his client had not yet been paid the agreed consideration for the sale. The initial report of Engineer Sta. Maria was apparently satisfactory to Mr. Manuel Chua because four (4) checks in the amount of P150,000.00 were given to respondent Castro for delivery to Benjamin Sarmiento as part payment of the purchase price for the land. Shortly after turning over the checks, however, the petitioner ordered their payment stopped. Sarmiento also had some problems encashing the petitioner's crossed checks. To enable the payment of the purchase price, respondent Castro not only presented a special power of attorney from Sarmiento but also executed the "Agreement and Statement of Warranties" which is now disputed in this petition for review. The agreement and statement reads: "NOW THEREFORE, for and in consideration of the premises, I hereby warrant to the Premier Insurance and Surety Corp. that Benjamin R. Sarmiento was until his sale of the above-mentioned property to the Premier Insurance & Surety Corp., the true and absolute owner of the said property, and that the same was, at the time of said sale, free from all liens and encumbrances, and that said Benjamin R. Sarmiento had the legal right to execute the above-mentioned Deed of Absolute Sale; "That I hereby hold myself jointly and severally liable with said Benjamin R. Sarmiento in whatever liability he might have in connection with the Vendor's warranties in the above-mentioned Deed of Absolute Sale; "That, after first being duly sworn, I also certify that the said Benjamin R. Sarmiento whom I have known for more than four years, is a person of juridical capacity and with legal capacity to act and that he is of legalage and single." Upon the execution of the above warranty, the petitioner paid the entire consideration of P376,662.00, giving the checks to respondent Castro for delivery to Sarmiento. Later on, when the petitioner tried to sell the piece of land to Solid Realty and Financing Corporation, it discovered that there were actually two torrens titles to the same property. One title, that of Benjamin R. Sarmiento, had been acquired from a certain Teresita Lorenzo who executed an absolute deed of sale in his favor on June 11, 1969. Teresita Lorenzo in turn secured her Original Certificate of Title through a Miscellaneous Sales Patent dated June 24, 1967 from the Bureau of Lands. The other title in the names of Caridad Almendras and Alejandro D. Almendras came from a certain Justina Lorenzo who sold the lot to them on February 10, 1970. The original title of Justina Lorenzo was issued pursuant to a judgment dated January 9, 1967 and a decree dated October 8, 1968 rendered by the Court of First Instance of Rizal in LRC Case No. T-70. The trial court sustained the Almendras' title as the valid title and declared the Sarmiento's title null and void. It also absolved the Register of Deeds of Rizal and the Assurance Fund of the National Treasury from any liability. Benjamin Sarmiento and respondent Castro were declared jointly and solidarily liable for the P376,662.00 consideration for the sale, P3,850.00 expenses incurred during the sale, 12 percent interest per annum from August 14, 1969, P20,000.00 attorney's fees, and costs. As earlier stated, the Court of Appeals in its amended decision absolved respondent Castro from any liability arising from his agreement and statement of warranties. It is with regards to this amended decision that the petitioner raises the following assignments of errors: I. THE RESPONDENT COURT, IN CONCLUDING THAT THE AGREEMENT AND STATEMENT OF WARRANTIES DID NOT EXPRESS THE TRUE INTENT OF THE PARTIES, FAILED TO REALIZE THAT IT GRANTED A REFORMATION OF

AGREEMENT WITHOUT THE RESPONDENT CASTRO REQUIREMENTS FOR REFORMATION OF INSTRUMENTS.

SATISFYING

THE

WELL-SETTLED

STRINGENT "Q Were you able to have these checks, the cross markings, cancelled at the Premier Insurance & Surety Corporation, Mr. Witness? "A I accompanied Mr. Sarmiento and we both saw Mr. Manuel Chua of the Premier Insurance, rather we both saw Mr. Manuel Chua the Treasurer of plaintiff corporation and he agreed to cancel the crossed markings on the checks, sir. "Q Now, Mr. Manuel said -- Now, Mr. Manuel Chua said when he testified before this Honorable Court that the Premier Insurance & Surety Corporation, the plaintiff corporation in this case, that it had actually stopped the payment of these four (4) checks because you were not able to present Mr. Sarmiento to him, is that correct, Mr. Witness? "A Precisely, I brought Mr. Sarmiento to Mr. Manuel Chua in connection with his request to cross the crossedmarkings on the checks and Mr. Manuel Chua met Mr. Sarmiento and Mr. Chua agreed to remove the crossed markings, 'crossed checks', on those checks, sir. "Q What then was the reason... Were the payment of those checks however, stopped, Mr. Witness? "A Yes, the payments were stopped because notwithstanding that the cross markings were removed, Mr. Sarmiento was unable to encash the checks for the reason that Mr. Manuel Chua refused to sign on the dorsal side identifying the signature of Mr. Sarmiento. Subsequently, Mr. Sarmiento was informed of the stop-payment order; that nevertheless and after sometime Mr. Sarmiento was informed that with respect to the check the two checks were stopped payment on the two checks was stopped by Premier Insurance & Surety Corporation.

II. THE RESPONDENT COURT, IN REVERSING ITS ORIGINAL DECISION, ERRED IN CONCLUDING THAT THE AGREEMENT AND STATEMENT OF WARRANTIES DID NOT EXPRESS THE TRUE INTENT AND AGREEMENT OF PARTIES, THAT IT WAS SIMULATED, NOT INTENDED TO BE ENFORCED, AND WAS ONLY A FORMALITY. III. THE RESPONDENT COURT, IN REVERSSING ITS ORIGINAL DECISION, ERRED IN HOLDING THAT PETITIONER CANNOT ENFORCE THE STIPULATIONS IN THE AGREEMENT AND STATEMENT OF WARRANTIES BECAUSE RESPONDENT SIGNED THE SAME IN HIS PERSONAL CAPACITY AND NOT AS AGENT OF BENJAMIN SARMIENTO AND THERE WAS NO AUTHORITY GIVEN HIM ON THIS MATTER. IV. THE RESPONDENT COURT, IN REVERSING ITS ORIGINAL POSITION, ERRED IN CONCLUDING THAT THERE WAS NO CLOUD OF DOUBT DURING THE WHOLE PERIOD OF SALE AS REGARDS TO PARTNERSHIP AND TITLE OF BENJAMIN SARMIENTO, AS SUCH CONCLUSION WAS BASED ON MISAPPREHENSION OF THE EVIDENCE ON RECORD. The petitioner contends that the appellate court in ruling that the "Agreement and Statement of Warranties", Exhibit "L" was a mere formality which did not express the true intent of the parties was, in effect, granting a reformation of the instrument without legal basis. It states that there is no basis for reformation. According to the petitioner, Exhibit "L" is explicit and clear, leaving no room for different interpretation, that it was drawn in clear and simple language, and that it could not have possibly misled respondent Castro, a lawyer with vast experience and superior knowledge in this line of business. It states that the private respondent with his experience and knowledge would not have involved himself in a liability to pay the full price of the land without having received its equivalent value. Crucial to the resolution of this petition are two factual issues resolved by the respondent court against the petitioner - (1) whether or not Benjamin Sarmiento is a fictitious person whom the petitioner's officers never met personally, and (2) whether or not the petitioner ordered the stop payments on the four (4) checks representing the initial payments because of doubts about the validity of Sarmiento's title. We affirm the factual findings of the respondent court. The testimony of the respondent on these issues is not only credible but is also unrebutted by the petitioner. It states: "Q Mr. Witness, what you have testified the last time, is that (you testified that) after the execution of the deed of sale, plaintiff Premier Insurance and Surety Corporation paid Sarmiento several post dated checks and four (4) of which are in the amount of P150,000.00) One Hundred Fifty Thousand Pesos, now represented and covered by the receipt marked as Exhibit J namely: ABC Check No. 1507 Metropolitan No. 374697, and PPC 1146821, Check No. 736140, do you know whether or not Mr. Sarmiento was able to encash these four checks which are stated in your receipt of August 7, 1969, Exhibit J? "A I know that Mr. Sarmiento had not been able to encash one of the two checks which I cannot remember that the checks as evidenced by my receipt were crossed check for deposit, sir. "Q "A Did you deliver to Mr. Sarmiento the four (4) checks that were received by you under this receipt Exhibit J? Yes, sir I delivered.

"Q Did you eventually come to know the reason why at least two (2) of the four (4) checks were stopped payment? "A Mr. Sarmiento and I went to see Mr. Manuel Chua. Although he did not tell Mr. Sarmiento certain matters and Mr. Chua instead he confided to me that certain funds of the Premier Insurance & Surety Corporation were invested or placed in the money market of General Acceptance and Finance Corporation were not yet really cancelled but rather the checks bounced for insufficient funds." Manuel Chua, therefore, transacted personally with Sarmiento and the initial checks were cancelled because of insufficiency of funds at that time. That the petitioner could not have doubted the title during the negotiations leading to the sale and during the payment of the consideration is shown by the report of the engineer-surveyor which it commissioned to investigate the purchased property. Respondent Castro stresses that he did not know Engineer Sta. Maria and that there is no intimation at all in the records that he had any knowledge about the verifications and reports submitted by Mr. Sta. Maria to the petitioner. The Sta. Maria report states that "as far as authenticity of the titles are concerned, there is no question the present title of Benjamin R. Sarmiento is genuine." The report apprised the petitioner of a possible risk of overlapping claims with third parties who may have claimed under voluntary registration. Mr. Sta. Maria described the risk as "minimal" because the risk was attributed only to government negligence in selling the lot to Teresita Lorenzo without ascertaining her actual occupation or introduction of improvements, which are requisites for miscellaneous sales patents. The so-called doubts of the petitioner, if any, could not have referred to the Almendras' title because Engineer Sta. Maria looked into this matter and specifically reported it to the petitioner. Thus his report on verification of ownership (Exhibit "I") reads in part: "A research in the Bureau of Lands, Land Registration Commission, Court of First Instance of Rizal, and the Court of Appeals of cases of conflicting claims and overlapping surveys in the vicinity of Barrio Ibayo, Municipality of Paraaque, Province of Rizal did not reveal any. "An alleged claim that Lot 3641 of which Lot 3641-A is a portion is in conflict with plan Psu-170496 (Caridad C. Almendras) was verified to be true in 1967. However, prior to the issuance of Original Certificate of Title No. 156, the conflict was resolved in favor of the government. As a result, on August 7, 1967, the original plan Psu-170496 was corrected giving way to the release of the portion applied under Miscellaneous Sales Patent. The Land Registration case covering the amendment of Psu-170496 (Caridad C. Almendras) is Land Registration Case No. N-2133, Land Registration Commission Rec. No. N16585.

"Q When you delivered these checks you said that these checks were crossed checks. What did Mr. Sarmiento do with said checks? "A Mr. Sarmiento wanted to encash those checks because he needed very badly to bring the money to Pangasinan and he requested me to help him to encash the crossed checks marking on the checks to cancel the crossed markings, so that he can cash the checks, sir. "Q Why, did you accede to his request that you had the checks, the crossed-checks, the markings on the crossedchecks be cancelled and encash the same? "A Yes, sir I told him to bring the check to the Premier Insurance & Surety Corporation and have the crossed-checks markings be removed.

"Outside of the above-mentioned case, our researchers have not found any other possible risk of future litigation which may involve the lot in question." It is clear from the records that the petitioner corporation took the necessary steps to have the property it was purchasing as well as all papers relative to the purchase verified before it paid the agreed consideration. The private respondent contended in his defense that the special power of attorney constituted him an attorney-in-fact of Sarmiento only for purposes of collecting the purchase price of the property. Sarmiento was then in Pangasinan campaigning for the candidacy of Luis Garcia who was running for Congress. The private respondent states: "x x x Defendant Castro could not have guaranteed the title of defendant Sarmiento since the property was covered by a torrent certificate of title which on its face did not disclose any liens or encumbrances on said property, and consequently any party dealing with said property has the right to assume that the registered owner had clean title to the property and the right to convey title thereto for such is the very foundation of our Torrens System. Any undertaking on the part of defendant Castro to further guarantee the title of the vendor of said property was superfluous and was furthermore null and void for lack of consideration. Actually the true intention of the parties to the Agreement and Statement of Warranties, Annex "D" to the Complaint, namely plaintiff and defendant Castro was that Castro was merely to guarantee that the payment of the purchase price was to Benjamin R. Sarmiento, the registered owner of the property, and that any payment made to him (Castro) as attorney-in-fact of Benjamin R. Sarmiento would discharge plaintiff from any further liability with respect to the purchase price of the property. The reason why Sarmiento had to appoint any attorney-in-fact to receive payment for him was that at that time he (Sarmiento) was residing in the province and since the actual date of payment was not certain because plaintiff wanted first to wait for the result of the relocation survey and investigation being undertaken by Engineer Sta. Maria, it would be very inconvenient for him (Sarmiento) to come from time to time to Manila to verify whether the payments are already ready. Defendant Castro and Manuel Chua, the duly authorized representative of plaintiff, has had several previous business and professional dealings in the past and as a matter of fact defendant Castro was the lawyer who handled Manuel Chua's naturalization case." In trying to convince the appellate court of the above as the true meaning and intent of the agreement of warranty, the respondent pointed to his close personal relations with the petitioner's principal officers, its president Vicente Sayson, treasurer Manuel Chua, and legal counsel Dean Feliciano Jover Ledesma. When Sayson was president of Filipinas Merchandising Corporation, which handled the importation of reparations goods from Japan, respondent Castro was vice president and legal counsel. The respondent was also the lawyer of Manuel Chua since 1954 and apart from the latter's naturalization case handled land transactions such as the acquisition by Chua of the Golden Gate Hotel. The respondent pointed to indices of close relationship to sustain his version of the meaning of the disputed agreement: "1. The Deed of Absolute Sale (Exhibit B) was executed on 1 August 1969. Even before payment of the purchase price, appellant acceded to the request of Chua that the sale be immediately registered in the name of plaintiff-appellee and, accordingly, appellant convinced Sarmiento to agree to the request and to cause such registration, as in fact it was so registered. "2. Notwithstanding that the agreement on the sale document was for full payment of the purchase price in cash, appellant made representations for and in behalf of plaintiff-appellee to be allowed to make a partial payment of the purchase price. So that, even after the surveyor's reports (Exhibits L and L-1), plaintiff-appellee paid only P150,000 notwithstanding the commitment of its board of directors to pay in full after receiving the said surveyor's reports. "3. Even after the execution of the 'Agreement and Statement of Warranties' on 14 August 1969, appellant made representations with Sarmiento, for and in behalf of plaintiff-appeellee, to accept plaintiff-appellee's checks postdated to 22 August, 4 September, 23 September, 11 October and 16 October 1969 in varying amounts (Vide, Exhibits M-4 to M-9, inclusive). "Ordinarily business transactions of this nature would have required strict adherence to and enforcement of verbal and written agreements, especially as to the payment of the stipulated consideration. But, because of appellant's close relationship with the officers of plaintiff-appellee, appellant prevailed upon Sarmiento to accommodate plaintiff-appellee's repeated departures from the strict compliance of its obligations even without the formalities of a written amendment to a duly executed sale agreement.

"The same close relationships impelled appellant to overlook the strict formalities in the preparation, and terminologies, of the disputed Agreement. "In restrospect, he should not have allowed sentimentalities to rule his conduct or his decision, he should have insisted on a strict literal documentation of agreements, representations and assurances made by plaintiff-appellee's officers. But, it must be appreciated that at that time, when no one had any inkling that anything was amiss or would eventually go wrong --- at least not in appellant's mind --- it seemed out of step and totally incongruous with the spirit of mutual trust and friendship that pervaded the transaction for appellant to doubt the verbal assurances made and to require them to be placed in writing. "To hold appellant liable, therefore, to the strict, literal terms of the questioned Agreement would be to put undue reliance on the words employed by the parties therein to the total disregard of their true intention and agreement and it would thus be grossly unfair, iniquitous and unconscionable to enforce the same against appellant." The petitioner cites Article 1359 of the Civil Code on reformation of instruments and the case of Bank of the Philippine Islands v. Fidelity & Surety Co. (51 Phil. 57) to show that there is no proof of the clearest and most satisfactory character of a mutual mistake as would justify a reformation of the Agreement. We agree with the private respondent that he was only introducing evidence on the true intent and meaning of the instrument as a matter of defense and that the exception to the parol evidence rule is more in point While it is a general rule that parol evidence is not admissible for the purpose of varying the terms of a contract, when an issue is quarely presented that a contract does not express the true intention of the parties, courts will, when a proper foundation is laid therefore, hear evidence for the purpose of ascertaining the true intention of the parties. Once the intent is clear, then it shall prevail over what on its face the document appears to be. (Labasan v. Lacuesta. 86 SCRA 16, 22). The court does not reform the instrument. It remains as it was written. However, the court receives evidence to find out how the parties really bound themselves. The second exception to the parol evidence rule enables the court to ascertain the intent of the parties. Respondent Castro testified that it was petitioner's counsel, the late Dean Jover Ledesma who prepared the disputed Agreement, Exhibit "L" and states that the testimony of Manuel Chua on Exhibit "L" and on the warranty assumed by Castro should not be given any credence because Chua had no part in Ledesma's preparation of Exhibit "L" nor was Chua present during the conversation and understanding between Ledesma and Castro as to the purpose and object of the Agreement. In fact any ambiguity must be construed against the party who drafted the document. (Coscolluela v. Valderama, 2 SCRA 1095). Respondent Castro tries to resuscitate the issue on the nullity of Sarmiento's title, to wit: "x x x [T]he Original Certificate of Title 156 (Exh. S) issued to Teresita Lorenzo, Sarmiento's vendor, on the basis of a Miscellaneous Sale Patent predated the registration of the land in question by Justina A. Lorenzo, the vendor of the Almendras spouses. Teresita's title, O.C.T. No. 156, was issued on June 24, 1967 yet, while that of Justina's O.C.T. No. 8318 was issued only on October 30, 1969 and transcribed in the Registration Book of the Registry of Rizal only on November 5, 1969. Even the decree from which it sprung was issued by the Court of First Instance of Rizal in LRC Case No. N-70 only on October 8, 1968. Nowhere in the above-quoted portions of petitioner's brief is it contended, much less alleged as proven, that any irregularity or flaw attended the issuance of O.C.T. No. 156 to Teresita Lorenzo. To be sure, if there is anything questionable in the above narration in petitioner's brief, it is the unexplained registration of the land issue in favor of Justina A. Lorenzo when there was already an outstanding title in the name of Teresita Lorenzo duly issued more than two (2) years earlier and which has not been shown to have been invalidated by any duly constituted authority whether judicial or administrative." x x x. This issue is no longer before us. The trial court has decided that the Almendras title is the valid title and not that of Sarmiento. Since the petitioner cannot recover what it paid either from Sarmiento or from the Assurance Fund, the only issue is whether it should be allowed to recover from Sarmiento's lawyer and attorney-in-fact or whether, under the circumstances, it should shoulder the loss itself. The petitioner has failed to sustain its contention that the respondent court committed clearly reversible errors in drawing erroneous conclusions from established facts. We apply the established rule that the findings of facts of the appellate court

are deemed conclusive unless it is shown that there is no substantial evidence to support them (Amigo v. Teves, 96 Phil. 252; Alsua-Betts v. Court of Appeals 92 SCRA-332). There is no such showing. WHEREFORE, the petition for review is DISMISSED for lack of merit. The judgment of the appellate court is AFFIRMED. No costs. SO ORDERED. Melencio-Herrera, Plana, and De la Fuente, JJ., concur. Teehankee, J., (Chairman), in the result. Patajo, J., no part. G.R. No. L-46307 October 9, 1985 PACIENCIA VIZCONDE SERRANO, petitioner, vs. HONORABLE COURT OF APPEALS, LEOCADIO MACARAYA and MAXIMO C. FERNANDEZ, respondents. GUTIERREZ, JR., J.: This is a case which involves the true nature of the purported contract of sale executed by petitioner Paciencia Vizconde Serrano in favor of private respondent Leocadio Macaraya. The background tacts were summarized by the then Court of Appeals as follows:

consideration to conceal the usurious monthly interest of P1,000.00. She claimed to be a victim of fraud perpetrated by Macaraya and Fernandez. On the other hand, respondents Macaraya and Fernandez denied the imputation of fraud and insisted upon the regularity of the assailed transactions. Fernandez, who never attended trial but sent his deposition, claimed good faith in purchasing the property in question and denied knowledge of any flaw in the title of Macaraya. On May 29, 1971, the lower court rendered the following decision: WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering: l) Defendants to surrender to the Register Deeds of Davao Oriental, Transfer Certificate of Title No. T-15789 in the name of Maximo C. Fernandez; 2) The Register of Deeds of Davao Oriental to cancel Transfer Certificate of Title T-15789 in the name of Maximo C. Fernandez and to re-issue a new one in lieu thereof in the name of PACIENCIA VIZCONDE SERRANO; and 3) Defendants to pay moral damages in the sum of P2,000.00, attorney's fees in the sum of P1,000.00 and the costs of the suit. On appeal to the Court of Appeals, the trial court's decision was totally reversed in the following manner:

The litigated realty is more or less 384 square meters situated in the municipality of Mati, Davao Province, originally encompassed in plaintiff-appellee's TCT No. T-438 (Exh. D), then under lease, to expire last January 1971, with one Lorenzo Tan, who subleased the same to the Angelo Leonar Enterprises & Co., Inc., in actual possession thereof for a monthly rental of P500.00. On January 17, 1969, Mrs. Serrano executed a notarial document (Exh. A) purporting to convey the said realty by way of absolute sale to defendant Leocadio Macaraya for the price of P12,000.00. In a separate private document of even date (Exh. 1) Mrs. Serrano was given by Macaraya two months therefrom to repurchase her property during which period she was allowed to collect the monthly rentals. Thereafter rentals were collected by Macaraya himself.(1. tsn., 41-42). Mrs. Serrano did not re-purchase The property in question was burdened with unpaid taxes which had accumulated for many years, and pending the determination of the exact amount thereof by the Municipal Treasurer of Mati, Macaraya had his ownership rights in TCT No. T-438 on September 12, 1969 (Exhs. E & 2) of which fact Mrs. Serrano was duly notified on even date (Exh. 2-A). On September 29, 1969, Macaraya paid the tax arrearages in its entirety, including surcharges, for the period of 11 years from 1958 to 1969, inclusive, in the total amount of P 760.41 (Exh. 3). Thereafter, the sale to Macaraya was registered and on October 3, 1969, TCT No. 15704 (Exh. F) was consequently issued in his name. On October 21, 1969, the Macaraya spouses, Leocadio and Dorotea, jointly executed a deed of absolute sale (Exh. H) of the said property to Maximo C, Fernandez, which transaction was in effect one of (dacion en pago,) the P20,000.00 consideration therefor was applied as partial payment for the Macaraya's outstanding indebtedness to the vendee Fernandez who was consequently issued TCT No. T-15789 (Exh. G). There is now pending in the Municipal Court of Mati, Davao Oriental ejectment case No. 366, lodged by Maximo C. Fernandez against the lessee Angelo Leonar Enterprises & Co. In the meantime that the present litigation has not been resolved with finality the parties in the said ejectment case agreed to have the monthly rentals deposited as they fall due in the said municipal court. On April 18, 1970, petitioner Serrano filed with the then Court of First Instance of Davao Oriental, Branch X, a complaint against respondents Leocadio Macaraya and Maximo Fernandez for declaration of nullity of contract, cancellation of titles, reconveyance and damages. She alleged that the contract of sale between her and Macaraya was fictitious and simulated. She averred that it did not reflect their true agreement, which was a mere transaction of loan in the amount of P12,000.00. She further alleged that she actually received only P10,000.00 and that the difference of P2,000.00 was added to the

IN VIEW OF ALL THE FOREGOING CONSIDERATIONS, the decision appealed from is set aside and the complaint dismissed. The title certificate TCT No. T-15789 of defendant-appellant Maximo C. Fernandez is hereby declared valid and consequently he is likewise declared the absolute owner of the herein litigated property. The Court of Appeals held that "the Deed of Sale" Identified as Exhibit "A" is really a contract of sale with all the required legal formalities and therefore has in its favor the presumption of regularity and nothing but the most convincing evidence will prevail in order to overthrow its probative value with respect to the transactions recorded therein." The appellate court stated that even if Exhibit "A" is void, the property subject of the conflict has been transferred to a third person, the other defendant Maximo C. Fernandez, and, therefore, the nullity of Exhibit "A", would be of no moment and cannot adversely affect the rights of the said defendant-transferee. On November 26, 1976, the petitioner filed a motion for reconsideration and rehearing of the decision of the Court of Appeals. The motion was denied in a resolution dated January 19, 1977. On February 23, 1977, the petitioner filed with the same court a motion for new trial based on newly discovered evidence which would prove that respondent Fernandez was not a buyer in good faith. This motion was denied by the Court of Appeals in its resolution dated April 19, 1977. Petitioner Serrano went to this Court in a petition for certiorari with the following assignments of errors: I. THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN HOLDING THAT EXHIBIT "A" WAS REALLY A CONTRACT OF SALE WITHOUT CONSIDERING EXHIBIT "I" AND OTHER CIRCUMSTANCES. II. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING THAT EXHIBIT "A" TOGETHER WITH EXHIBIT "I" IS A PACTO DE RETRO SALE AND CONSEQUENTLY ERRED IN NOT ALLOWING PETITIONER TO REPURCHASE THE LITIGATED PROPERTY ACCORDING TO LAW. III. THE HONORABLE COURT OF APPEALS ERRED IN CONSIDERING DEPOSITION (EXHIBIT 1, FERNANDEZ) IN ITS DECISION CONTRARY TO LAW. IV. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PRESUMPTION OF GOOD FAITH WAS NOT OVERCOME BY PETITIONER AND IN DECLARING THAT RESPONDENT FERNANDEZ HAS A VALID TITLE OVER THE LITIGATED PROPERTY.

V. THE HONORABLE COURT OF APPEALS ERRED IN DENYING PETITIONER'S MOTION FOR RECONSIDERATION AND REHEARING AND THE SUBSEQUENT MOTION FOR NEW TRIAL WITHOUT VALID GROUNDS STATED THEREIN. Even as respondents Macaraya and Fernandez urge this Court to affirm the Court of Appeals decision on its merits, they raise as a preliminary issue the timeliness of the filing of the petition. Our examination of the records of this case shows that the arguments on this issue have no merit. We note that the respondents have deducted the number of days between the petitioner's notice of the decision and the date she filed a motion for reconsideration from the number of days given her to come to us on a petition for review or to take such other action before judgment becomes final and executory. The respondents err in their mode of computing the period before finality of judgment. Section I of Rule 45 of the Rules of Court gives a party 15 days from the denial of a motion for reconsideration by the appellate court to come to the Supreme Court. These 15 days do not include the number of days that lapse from notice of judgment to the filing of the motion for reconsideration. The 15-day period starts anew from the notice of the motion's denial. And even assuming that a petition for review is filed a few days late, where strong considerations of substantial justice are manifest in the petition, this Court may relax the stringent application of technical rules in the exercise of our equity jurisdiction. In addition to the basic merits of the main case, such a petition usually embodies justifying circumstances which warrant our heeding the petitioner's cry for justice, inspite of the earlier negligence of counsel. It bears repeating that rules of procedure are not to be applied rigidly (Tan v. Director of Forestry, 125 SCRA 302). In a number of cases, this Court in the exercise of equity jurisdiction decided to disregard technicalities in order to resolve the case on its merits based on the evidence. (See St. Peter Memorial Park, Inc. v. Cleofas, 121 SCRA 287; Helmuth, Jr. v. People of the Philippines, 112 SCRA 573). As we ruled in the case of Calasiao Farmers Cooperative Marketing Association, Inc. v. Court of Appeals (106 SCRA 630, 637): Dismissal of appeals based on purely technical grounds is frowned upon as the policy of the Courts is to encourage hearing of appeals on the merits. (Gregorio v. Court of Appeals, 72 SCRA 120 [1976]) Rules of procedure, are intended to promote, not to defeat substantial justice, and therefore, they should not be applied in a very rigid and technical sense. In the case at bar, the conclusions of the Court of Appeals on factual matters are contrary to those of the trial court. A minute scrutiny by this Court is in order and resort to duly proven evidence becomes necessary (Legaspi v. Court of Appeals, 69 SCRA 360, and Tolentino v. De Jesus, 56 SCRA 167). Was the contract entered into between petitioner Serrano and respondent Macaraya an absolute sale as found by the Court of Appeals or an equitable mortgage as alleged by the petitioner? The records show that the contract between the parties was actually a deed of sale pacto de retro which was made to appear as an absolute deed of sale. This Court has ruled in Shell Co. of the Phils. Ltd. v. Firemen's Ins. Co. of Newark, N. J. et al. (100 Phil. 757.) that: To determine the nature of a contract courts do not have or are not bound to rely upon the name or title given it by the contracting parties, should there be a controversy as to what they really had intended to enter into, but the way the contracting parties do or perform their respective obligations stipulated or agreed upon may be shown and inquired into, and should such performance conflict with the name or title given the contract by the parties, the former must prevail over the latter. That a transaction was really one of loan with security, and therefore a mortgage, may be shown by the aid of surrounding circumstances, and parol evidence is competent in that respect. This rule has been accepted for many generations. The difficulty lies in its application, for many factors are to be considered, none of them conclusive in itself, but each to be considered in its company. (1 Glenn, Mortgages, 59-60 [1943]).

In the instant case, the petitioner was made to execute a document entitled "Deed of Absolute Sale" in favor of respondent Macaraya. On the same date Macaraya executed an Undertaking" giving the vendor the right to repurchase the lot within two months from date. Significantly, the same Elpidia C. Lagura who signed as witness to the deed of absolute sale was also a witness to the undertaking. As stated in Capulong v. Court of Appeals (130 SCRA 245), the intent to circumvent the Civil Code provision discouraging pacto de retro sales is very apparent. In the Capulong case, we distinguished between these types of contracts and the contract in Villarica v. Court of Appeals (26 SCRA 189). We stated: There is one important factor that differentiates the Villarica case from the instant petition. The document granting the vendors therein an option to buy back the property was executed six (6) days after the execution of the deed of sale whereas in the instant case the option to buy was embodied in a document executed at the same time that the questioned deed of sale was executed. The option to buy in Villarica case was interpreted to be only an afterthought. On the other hand, the intent of the parties to circumvent the provision discouraging pacto de retro sales is very apparent in the instant case. The two contracts, the deed of sale and the document embodying the option to repurchase were prepared, signed, and notarized on the same day. The respondent court should have seen through a transparent effort to make it appear that the two transactions were not intimately related but distinct and separate as in the Villarica case. This should have put the court on guard considering the other circumstances of the case from which no other conclusion could be derived except that the deed of absolute sale and the document giving the right to repurchase were, in fact, only one transaction of sale pacto de retro which must be construed as an equitable mortgage. ... Since the sale of the lot was one of pacto de retro, the question before us now is whether or not it should be treated as an equitable mortgage. The Civil Code provides: ART. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. ART. 1603. In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. ART. 1604. The provisions of article l602 shall also apply to a contract purporting to be an absolute sale. We find the amount of P12,000.00 inadequate for a 384 square meter lot in the poblacion of Mati, Davao which the trial court found to be "a very valuable piece of commercial property." This conclusion is supported by the fact that barely ten months after the questioned transaction between the petitioner and respondent Macaraya, it was transferred to respondent Fernandez (Exhibit H) who admitted that it was good bargain, for a consideration of P20,000.00, The records also show that on June 2, 1970 or another seven months later, (Exhibit "4"), the Angelo Leonar Enterprises, Inc. offered to respondent Macaraya their willingness to purchase the same lot for P30,000.00. There was no showing of any reasons why the value of the lot appreciated so rapidly. What was admitted in the pleadings and testimonies of both parties was the fact that petitioner Serrano "needed the money." In Labasan v. Lacuesta (86 SCRA 16), this Court quoted the Lord Chancellor in Vernon v.

Bethell (2 Eden. 13) thus: Necessitous men are not, truly speaking, free men; but to answer a present emergency, will submit to any terms that the crafty may impose upon them." In the trial proceedings below, we also note that respondent Macaraya had not been consistent in rebutting the allegation that the petitioner had paid him P1,000.00 monthly as interest for the amount loaned. It was also admitted by respondent Macaraya that petitioner Serrano continued receiving rentals from Angelo Leonar Enterprises, Inc., the lessee of the subject property for at least six months after the execution of the contract of sale dated January 17, 1969 (2 tsn. p. 24). The collection of rentals ceased only when respondent Fernandez sued the lessee for ejectment and the rentals were subsequently ordered to be deposited in the municipal court of Mati pending the resolution of this case. This Court finds it strange that respondent, Macaraya would allow petitioner Serrano to receive the fruits of the subject property several months after he acquired absolute ownership of the same. This is contrary to the principle of ownership. As of the filing of the petition and presumably up to the present, the petitioner and supposed vendor in an absolute sale has retained possession of the disputed property. The last issue refers to the petitioner's allegations that respondent Maximo C. Fernandez was not a purchaser in good faith. The trial court stated in its decision that it had serious doubts on the authenticity of the deed of sale executed by Macaraya in favor of his co-respondent Maximo C. Fernandez. The appellate court, however, brushed aside the contentions that Fernandez was a mere dummy in a simulated sale and ruled that the presumption of good faith was not overcome by clear cut and positive evidence to the contrary. We sustain the factual finding of the trial court. The trial court emphasized in its decision that the supposed buyer in good faith and current owner never showed the slightest interest in the litigation involving the cancellation of his title and the reversion of the lot he purchased from Macaraya to the original vendor. The court stated: It was the defendant Macaraya, who has from the inception of this case, manifested intense interest in the outcome of the same so much so that no one will doubt that he is indeed and truly the owner of the lot in question. Fernandez did not appear at the trial. His deposition taken in Cebu City at the Macaraya Building, Colon Street was introduced in evidence by the respondents. Fernandez admitted that he has never been to Mati, Davao Oriental and he has never seen the lot sold to him by Macaraya. He lives in San Roque, Talisay, Cebu. He never bothered to find out what was sold to him for P20,000.00 in 1969, whether or not the land was really worth that much or that it even existed. Maximo C. Fernandez was then a 64-year old man who worked as a tailor for a living. The records show that the deed of sale was executed by petitioner Serrano in favor of Macaraya on January 17, 1969. It took Macaraya until October 3, 1969 to have the transfer certificate of title T-15704 registered in his name. The deed of sale in favor of Fernandez was executed in Cebu City on October 21, 1969. Two days later, October 23, 1969, the new title, TCT No. 15704 was already registered in the Registry of Davao in the name of Fernandez, who was all the time in Cebu. It is also highly unusual that the transaction between Macaraya and Fernandez involved no transfer of money. The sale was allegedly one of dacion en pago. The Macarayas, who appear to be well to do, "sold" the P20,000.00 lot to Fernandez, a poor tailor, as "partial payment" for the Macaraya's outstanding indebtedness to the vendee. The fifth assignment of error questions the respondent court's denial of the petitioner's motion for rehearing or new trial. The petitioner wanted to introduce into the records the certification of the Talisay, Cebu treasurer that respondent Fernandez has no property listed in his name in that municipality and the certification of the Bureau of Internal Revenue Regional Director for Central Visayas that respondent Fernandez did not file any income tax returns for the years 1968 through 1972.

We see no need to pass upon this issue. There is more than enough evidence in the records to affirm the trial court's finding that Fernandez was not a buyer in good faith. WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE. The contract between the petitioner and Leocadio Macaraya being one of equitable mortgage, Transfer Certificate of Title No. T15789 in the name of Maximo C. Fernandez is ordered CANCELLED and a new one issued in the petitioner's name. SO ORDERED. Teehankee (Chairman), Melencio-Herrera, Plana, Relova, De la Fuente and Patajo, JJ., concur. G.R. No. 42108 December 29, 1989 OSCAR D. RAMOS and LUZ AGUDO, petitioners, vs. HON. COURT OF APPEALS, ADELAIDA RAMOS and LAZARO E. MENESES, respodents. REGALADO, J.: The instant petition for review on certiorari impugns the decision of the Court of Appeals dated October 7, 1975, 1 which affirmed in toto the decision of the Court of First Instance of Tarlac in Civil Case No. 4168, entitled "Adelaida Ramos, et al. vs. Oscar D. Ramos, et al.," holding that the contracts between the parties are not ventas con pacto de retro but are equitable mortgages. Sometime in January 1959, private respondent Adelaida Ramos borrowed from her brother, petitioner Oscar D. Ramos, the amounts of P 5,000.00 and P 9,000.00 in connection with her business transaction with one Flor Ramiro, Fred Naboa and Atty. Ruperto Sarandi involving the recovery of a parcel of land in Tenejeros, Malabon. The said amount was used to finance the trip to Hawaii of Ramiro, Naboa and Atty. Sarandi. As security for said loan, private respondent Adelaida Ramos executed in favor of petitioners two (2) deeds of conditional sale dated May 27, 1959 and August 30, 1959, of her rights, shares, interests and participation respectively over Lot No. 4033 covered by Original Certificate of Title No. 5125 registered in the name of their parents, Valente Ramos and Margarita Denoga, now deceased; 2 and Lot No. 4221 covered by Transfer Certificate of Title No. 10788 then registered in the names of Socorro Ramos, Josefina Ramos and Adelaida Ramos, 3 said properties being of the Cadastral Survey of Paniqui, Tarlac. Upon the failure of said private respondent as vendor a retro to exercise her right of repurchase within the redemption period, aforenamed petitioner filed a petition for consolidation and approval of the conditional sale of Lot No. 4033 in Special Proceedings No. 5174, entitled "Intestate Estate of the late Margarita Denoga," 4 and a petition for approval of the pacto de retro sale of Lot No. 4221 in the former Court of First Instance of Tarlac acting as a cadastral court. 5 On January 22, 1960, the said probate court issued an order with the following disposition: WHEREFORE, the deed of CONDITIONAL SALE executed on May 27, 1959, by Adelaida Ramos in favor of spouses Oscar D. Ramos and Luz Agudo, conveying to the latter by way of pacto de retro sale whatever rights and interests the former may have in Lot No. 4033 of the Cadastral Survey of Paniqui, which deed of conditional sale is known as Document No. 14, Page 26, Book VI, Series of 1959, of the notarial register of Notary Public Jose P. Sibal, is hereby approved. 6 The cadastral Court also issued a similar order dated April 18, 1960, the dispositive portion of which reads: WHEREFORE, by way of granting the petition, the Court orders the consolidation of ownership and dominion in petitionersspouses Oscar D. Ramos and Luz Agudo over the rights, shares and interests of Adelaida Ramos in Lot No. 4221 of the Cadastral Survey of Paniqui, Tarlac, which the latter sold to the former under a pacto de retro sale executed in a public instrument known as Document No. 22, Page 28, Book No. VI. Series of 1959, of the Notarial Registry of Notary Public Jose P. Sibal but which she failed to repurchase within the period specified in said Document. 7 Private respondents had been and remained in possession of these properties until sometime in 1964 when petitioner took possession thereof.

On February 28, 1968, private respondent filed Civil Case No. 4168 with the then Court of First Instance of Tarlac for declaration of nullity of orders, reformation of instrument, recovery of possession with preliminary injunction and damages. The complaint therein alleged that the deeds of conditional sale, dated May 27, 1959 and August 30, 1959, are mere mortgages and were vitiated by misrepresentation, fraud and undue influence and that the orders dated January 22, 1960 and April 18, 1960, respectively issued by the probate and cadastral courts, were null and void for lack of jurisdiction. Petitioners, in their answer to the complaint, specifically deny the allegations of fraud and misrepresentation and interposed as defense the fact that the questioned conditional sales of May 27, 1959 and August 30, 1959 were voluntarily executed by private respondent Adelaida Ramos and truly expressed the intention of the parties; that the action, if any, has long prescribed; that the questioned orders of January 22, 1960 and April 18, 1960, approving the consolidation of ownership of the lands in question in favor of petitioner were within the jurisdiction of the lower court, in its capacity as a probate court insofar as Lot No. 4033 is concerned, and acting as a cadastral court with respect to Lot No. 4221; and that said lands subject of the conditional sales were in custodia legis in connection with the settlement of the properties of the late Margarita Denoga, the predecessor in interest of both petitioners and private respondents. On January 7, 1970, the court below issued a pre-trial order to the effect that petitioners admit the genuineness and due execution of the promissory notes marked as Exhibits "F" and "F-1 " and that the principal triable issue is whether or not the documents purporting to be deeds of conditional sale, marked as Exhibits "B", "B-1" and "G" were in fact intended to be equitable mortgages. 8 In its order dated February 17, 1971, the trial court also declared: "Both parties agreed and manifested in open court the principal obligation in the transaction reflected in Exhibits 'B' and 'B-l' and 'G' is one of loan. The parties differ, however, on the nature of the security described therein. 9 On May 17, 1971, the court a quo rendered a decision the decretal part of which reads:

3. The Honorable Court of Appeals erred in holding that the order dated January 22, 1960, Exhibit C or 2, and the order dated April 18, 1960, Exhibit H or 6, issued by the probate court in Sp. Proc. No. 5174 and by the cadastral court in G.L.R.O. Rec. No. 395, respectively, are null and void for lack of jurisdiction. 4. The Hon. Court of Appeals erred in not applying the applicable provisions of law on the prescription of action and in not dismissing the complaint filed in the lower court. 12 We find the petition devoid of merit. Article 1602 of the Civil Code provides: The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold;

WHEREFORE, judgment is hereby rendered: 1) Denying defendants' motion to dismiss of February 23, 1970; 2) Declaring Exhibits 'B', 'B-I' and 'G' as loan transaction secured by real estate mortgages; 3) Annulling and setting aside Exhibits 'D', 'D-l', 'I', 'I-l' and 'I-2'; 4) Ordering plaintiffs, jointly and severally to pay (within ninety [90] days from receipt of a copy of this judgment) defendants the sum of P 5,000.00 specified in Exhibit 'B', with interest thereon at the legal rate from November 28, 1959 until full payment together with the sum of P 9,308.00 specified in Exhibit 'G' with interest thereon at the legal rate from December 1, 1959 until full payment, and in default of such payment, let the properties mortgaged under Exhibits 'B', 'B-1' and 'G' be sold to realize the mortgage debt and costs; and 5) Dismissing defendants' counter-claim. With costs against defendants. 10 On June 14, 1971, petitioners appealed said decision to the Court of Appeals which, on October 7, 1975; affirmed in all respects the judgment of the trial court. Petitioners' motion for reconsideration of said decision was denied on November 27, 1975. 11 On January 8, 1976, petitioners filed the petition at bar anchored on the following assignments of errors: 1. The Hon. Court of Appeals erred in not applying the correct provisions of law interpreting the conditional sales dated May 27, 1959 and August 30, 1959, Exhibits 'B' and 'G' as equitable mortgages. 2. That as a consequence of its ruling that the conditional sales, Exhibits 'B' and 'G', are equitable mortgages, the Hon. Court of Appeals erred in ordering the reformation of the same. Even if we indulge the petitioners in their contention that they are justified in not taking possession of the lots considering that what were allegedly sold to them were only the rights, shares, interests and participation of private respondent Adelaida Ramos in the said lots which were under administration, 14 however, such fact will not justify a reversal of the conclusion reached by respondent court that the purported deeds of sale con pacto de retro are equitable mortgages. Such a conclusion is buttressed by the other circumstances catalogued by respondent court especially the undisputed fact that the two deeds were executed by reason of the loan extended by petitioner Oscar Ramos to private respondent Adelaida Ramos and that the purchase price stated therein was the amount of the loan itself. The above-stated circumstances are more than sufficient to show that the true intention of the parties is that the transaction shall secure the payment of said debt and, therefore, shall be presumed to be an equitable mortgage under Paragraph 6 of Article 1602 hereinbefore quoted. Settled is the rule that to create the presumption enunciated by Article 1602, the existence of one circumstance is enough. 15 The said article expressly provides therefor "in any of the following cases," hence the existence of any of the circumstances enumerated therein, not a concurrence nor an overwhelming number of such The Court of Appeals, in holding that the two (2) deeds purporting to be pacto de retro sale contracts are equitable mortgages, relied on the following factual findings of the trial court, to wit: Several undisputed circumstances persuade this Court (that) the questioned deeds should be construed as equitable mortgages as contemplated in Article 1602 of the Civil Code, namely: (1) plaintiff vendor remained in possession until 1964 of the properties she allegedly sold in 1959 to defendants; (2) the sums representing the alleged purchase price were actually advanced to plaintiff by way of loans, as expressly admitted by the parties at the hearing of February 17, 1971, reflected in an Order of the same date: and (3) the properties allegedly purchased by defendant Oscar Ramos and his wife have never been declared for taxation purposes in their names. Exhibits K, K-1, L and L-1. 13 (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.

circumstances, suffices to give rise to the presumption that the contract with the right of repurchase is an equitable mortgage. As aptly stated by the Court of Appeals: Thus, it may be fairly inferred that the real intention of the parties is that the transactions in question were entered into to secure the payment of the loan and not to sell the property (Article 1602, Civil Code). Under Article 1603 of the Civil Code it is provided that 'in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage' in this case, we have no doubt that the transaction between the parties is that of a loan secured by said properties by way of mortgage. Hence, we find that Exhibits B and G do not reflect the true and real intention of the parties and should accordingly be reformed and construed as equitable mortgages. 16 Equally puerile is the other contention of petitioners that respondent court erred in not applying the exclusionary parol evidence rule in ascertaining the true intendment of the contracting parties. The present case falls squarely under one of the exceptions to said rule as provided in then Section 7 of Rule 130, thus: xxx xxx xxx (a) Where a mistake or imperfection of the writing or its failure to express the true intent and agreement of the parties, or the validity of the agreement is put in issue by the pleadings; 17 xxx xxx xxx Moreover, it is a well entrenched principle in the interpretation of contracts that if the terms thereof are clear and leave no doubt as to the intention of the contracting parties the literal meaning of the stipulation shall control but when the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. 18 The admission of parol testimony to prove that a deed, absolute in form, was in fact given and accepted as a mortgage does not violate the rule against the admission of oral evidence to vary or contradict the terms of a written instrument. 19 Sales with a right to repurchase, as defined by the Civil Code, are not favored. We will not construe instruments to be sales with a right to repurchase, with the stringent and onerous effects which follow, unless the terms of the document and the surrounding circumstances require it. Whenever, under the terms of the writing, any other construction can fairly and reasonably be made, such construction will be adopted and the contract will be construed as a mere loan unless the court can see that, if enforced according to its terms, it is not an unconscionable one. 20 On the faces thereof, the contracts purport to be sales with pacto de retro; however, since the same were actually executed in consideration of the aforesaid loans said contracts are indubitably equitable mortgages. The rule is firmly settled that whenever it is clearly shown that a deed of sale with pacto de retro, regular on its face, is given as security for a loan, it must be regarded as an equitable mortgage. 21 With respect to the orders dated January 22, 1960 and April 18, 1960, issued by the Court below acting as a probate court and cadastral court, respectively, the same could not preclude the institution of the case now under review. A reading of the order of the probate court will show that it is merely an approval of the deed of conditional sale dated May 27, 1959 executed by petitioner Adelaida Ramos in favor of petitioners. There is nothing in said order providing for the consolidation of ownership over the lots allegedly sold to petitioners nor was the issue of the validity of said contract discussed or resolved therein. "To give approval" means in its essential and most obvious meaning, to confirm, ratify, sanction or consent to some act or thing done by another. 22 The approval of the probate court of the conditional sale is not a conclusive determination of the intrinsic or extrinsic validity of the contract but a mere recognition of the right of private respondent Adelaida Ramos as an heir, to dispose of her rights and interests over her inheritance even before partition. 23 As held in Duran, et al., vs. Duran 24 the approval by the settlement court of the assignment pendente lite, made by one heir in favor of the other during the course of the settlement proceedings, is not deemed final until the estate is closed and said order can still be vacated, hence the assigning heir remains an interested person in the proceeding even after said approval. Moreover, the probate jurisdiction of the former court of first instance or the present regional trial court relates only to matters having to do with the settlement of the estate and probate of wills of deceased persons, and the appointment and removal of administrators, executors, guardians and trustees. Subject to settled exceptions not present in this case, the law does not extend the jurisdiction of a probate court to the determination of questions of ownership that arise during the proceeding. The parties concerned may choose to bring a separate action as a matter of convenience in the preparation or presentation of evidence. 25 Obviously, the approval by the probate court of the conditional sale was without prejudice to the filing of the

proper action for consolidation of ownership and/or reformation of instrument in the proper court within the statutory period of prescription. The same jurisdictional flaw obtains in the order of consolidation issued by the cadastral court. The court of first instance or the regional trial court, acting as cadastral court, acts with limited competence. It has no jurisdiction to take cognizance of an action for consolidation of ownership, much less to issue an order to that effect, such action must have been filed in the former court of first instance, now in the regional trial court, in the exercise of its general jurisdiction. That remedy, and the procedure therefor, is now governed by Rule 64 of the Rules of Court as a special civil action cognizable by the regional trial court in the exercise of original general jurisdiction. Antecedent thereto, Article 1607 of the Civil Code provided for consolidation as follows: In case of real property, the consolidation of ownership in the vendee by virtue of the failure of the vendor to comply with the provisions of article 1616 shall not be recorded in the Registry of Property without a judicial order, after the vendor has been duly heard. Hence in Crisologo, et al. vs. Centeno, et al., 26 we ruled that said Article 1607 contemplates a contentious proceeding wherein the vendor a retro must be named respondent in the caption and title of the petition for consolidation of ownership and duly summoned and heard. An order granting the vendee's petition for consolidation of ownership, without the vendor a retro being named as respondent, summoned and heard, is a patent nullity for want of jurisdiction of the court over the person of the latter. The questioned order of consolidation issued by the cadastral court, being void for lack of jurisdiction, is in contemplation of law non-existent and may be wholly disregarded. Such judgment may be assailed any time, either directly or collaterally, by means of a separate action or by resisting such judgment in any action or proceeding whenever it is invoked. 27 It is not necessary to take any step to vacate or avoid a void judgment; it may simply be ignored. 28 On the issue of prescription, in addition to what has been said, the present case, having been filed on February 28, 1960, approximately seven (7) years from the execution of the questioned deeds, was seasonably instituted. The prescriptive period for actions based upon a written contract and for reformation is ten (10) years under Article 1144 of the Civil Code. Such right to reformation is expressly recognized in Article 1365 of the same code. 29 Article 1602 of the Civil Code is designed primarily to curtail the evils brought about by contracts of sale with right of repurchase, such as the circumvention of the laws against usury and pactum commissorium. 30 In the present case before us, to rule otherwise would contravene the legislative intent to accord the vendor a retro maximum safeguards for the protection of his legal rights under the true agreement of the parties. The judicial experience in cases of this nature and the rationale for the remedial legislation are worth reiterating, considering that such nefarious practices still persist: It must be admitted that there are some cases where the parties really intend a sale with right to repurchase. Although such cases are rare, still the freedom of contract must be maintained and respected. Therefore, the contract under consideration is preserved, but with adequate safeguards and restrictions. One of the gravest problems that must be solved is that raised by the contract of sale with right of repurchase or pacto de retro. The evils arising from this contract have festered like a sore on the body politic. ... xxx xxx xxx It is a matter of common knowledge that in practically all of the so-called contracts of sale with right of repurchase, the real intention of the parties is that the pretended purchase-price is money loaned, and in order to secure the payment of the loan a contract purporting to be a sale with pacto de retro is drawn up. It is thus that the provisions contained in articles 1859 and 1858 of the present Civil Code which respectively prohibit the creditor from appropriating the things given in pledge or mortgage and ordering that said things be sold or alienated when the principal obligation becomes due, are circumvented.

Furthermore, it is well-known that the practice in these so-called contracts of sale with pacto de retro is to draw up another contract purporting to be a lease of the property to the supposed vendor, who pays in money or in crops a so-called rent. It is, however, no secret to anyone that this simulated rent is in truth and in fact interest on the money loaned. In many instances, the interest is usurious. Thus, the usury law is also circumvented. It is high time these transgressions of the law were stopped. It is believed by the Commission that the plan submitted for the solution of the problem will meet with the approval of an enlightened public opinion, and in general, of everyone moved by a sense of justice. During the deliberations of the Commission the question arose as to whether the contract of purchase with pacto de retro should be abolished and forbidden. On first impression, this should be done, but there is every reason to fear that in such a case the usurious money-lenders would demand of the borrowers that, although the real agreement is one of loan secured with a mortgage, the instrument to be signed should purport to be an absolute sale of the property involved. Should this happen, the problem would become aggravated. Moreover, it must be admitted that there are some cases where the parties really intend a sale with right to repurchase. Although such cases are rare, still the freedom of contract must be maintained and respected. Therefore, the contract under consideration is preserved in the Project of Civil Code, but with adequate safeguards and restrictions. 31 WHEREFORE, the instant petition is hereby DENIED and the assailed decision of the Court of Appeals is hereby AFFIRMED. SO ORDERED. Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur. [G.R. No. 146730, July 04, 2008] AMADO Z. AYSON, JR., PETITIONER, VS. SPOUSES FELIX AND MAXIMA PARAGAS, RESPONDENTS. NACHURA, J.: For review on certiorari under Rule 45 of the Rules of Court are the Decision[1] dated May 31, 2000 and the Resolution[2] dated December 12, 2000 of the Court of Appeals in CA-G.R. CV No. 59645. The subject of this controversy is the one-fourth (1/4) portion of, corresponding to the share of respondent Maxima Paragas in, the real property located at Caranglaan District, Dagupan City, originally covered by Transfer Certificate of Title No. 7316 of the Register of Deeds of Dagupan City. The controversy commenced with the filing of an ejectment complaint[3] on April 12, 1993 before Branch 1 of the Municipal Trial Court in Cities (MTCC) of Dagupan City by herein petitioner Amado Z. Ayson, as represented by his natural father Zosimo S. Zareno[4] (Zareno), against respondent-spouses Felix and Maxima Paragas. The complaint, docketed as Civil Case No. 9161, alleged, among others, that: (1) petitioner is the registered owner of the property being occupied by the respondent-spouses as shown by Transfer Certificate of Title No. 59036 of the Registry of Deeds of Dagupan City in his name; (2) respondent-spouses are occupying the said land through his tolerance without rent; (3) on April 8, 1992, respondent-spouses executed an Affidavit[5] which declared: That we are occupants of a parcel of land (Lot 6595-A-2) covered by Transfer Certificate of Title No. 57684 located at Caranglaan District, Dagupan City owned by Amado Ll. Ayson; That we occupy the said land by tolerance without paying any rental whatsoever; That we further agree to vacate the aforesaid land within three (3) months from the date hereof and to remove and transfer our house therefrom to another place; That in consideration of vacating the said parcel of land the amount of Twenty Thousand Pesos (P20,000.00) shall be paid to us; and, that the amount of Ten Thousand Pesos (P10,000.00) shall be paid upon signing of this affidavit and the balance of Ten Thousand Pesos (P10,000.00) shall be paid upon removal of our house on the third month from date hereof.

(4) despite the receipt of the P10,000.00 upon the execution of the Affidavit, respondent-spouses refused to vacate the land as agreed upon; and (5) despite demands, respondent-spouses still refused to vacate, thus constraining him to file the complaint. Aside from respondents' vacating the land, petitioner prayed for the return of the P10,000.00 he paid them; and the payment of P10,000.00 actual damages, P10,000.00 exemplary damages, P20,000.00 attorney's fees, and the costs. In their Answer,[6] respondent-spouses alleged that Zareno had no personality and authority to file the case and the filing of the complaint was made in bad faith. During the preliminary conference, the following admissions were made -By petitioner (1) That the defendants (respondent spouses) had been in possession of the land in question since 1930; and (2) That the semi-concrete house of the defendants (respondent spouses) stands on the land in question. By respondent spouses (1) That the defendant (respondent) Felix Paragas had executed an affidavit on April 8, 1992 wherein he admitted that he is occupying the land by tolerance of the plaintiff (petitioner) without paying any rental whatsoever and had agreed to vacate the premises within three (3) months but refused to vacate later; (2) That the plaintiff (petitioner) is the registered owner of the land in question; (3) That there was a demand to vacate the premises; and (4) That there is a Certification to File Action in Court.[7] On August 31, 1993, the MTCC, Branch 1, Dagupan City decided in favor of petitioner, based mainly on the above admissions, rendering judgment as follows: WHEREFORE, the preponderance of evidence being in favor of the plaintiff (petitioner), judgment is hereby rendered: 1) Ordering the defendants (respondent spouses) to vacate the land in question located at Caranglaan District, Dagupan City and covered by Transfer Certificate of Title No. 59036 of the Registry of Deeds for the City of Dagupan, and to deliver the physical and peaceful possession to the plaintiff (petitioner); 2) Ordering the defendants (respondent spouses) jointly and severally to pay the plaintiff (petitioner) the sum of P300.00 as monthly rental of the land from the date of the filing of the complaint until the defendants (respondent spouses) vacate the premises; 3) Ordering defendant (respondent) Felix Paragas to return or indemnify the plaintiff (petitioner) the amount of P10,000.00 representing the sum received by him from the plaintiff (petitioner) on April 8, 1992; 4) Other claims are denied for lack of merit. With costs against the defendants. SO ORDERED.[8] Respondent-spouses appealed the said Decision to the Regional Trial Court (RTC) of Dagupan City. In the Decision[9] dated August 16, 1996, the RTC affirmed the MTCC Decision, the dispositive portion of which reads WHEREFORE, the appeal interposed by the appellants is hereby DISMISSED. Judgment is rendered in favor of the plaintiff (petitioner) and against the defendants (respondent spouses), to wit: ORDERING defendants (respondent spouses), their agents, representatives and assigns to vacate the land subject matter of this case; ORDERING defendants (respondent spouses) to return to the plaintiff (petitioner) the amount of P10,000.00 received by them in consideration of their promise to vacate the land subject matter of this case; ORDERING defendants (respondent spouses) to pay to the plaintiff (petitioner) P10,000.00 in actual damages; P10,000.00 in exemplary damages; and P20,000.00 in attorney's fees; and ORDERING defendants to pay the costs.

SO ORDERED.[10] Respondent-spouses went to the Court of Appeals via a petition for review. In its Decision[11] dated October 13, 1997, the appellate court dismissed the petition. The Decision was appealed to this Court. We denied the appeal in a Resolution dated December 3, 1997, on the basis of the failure of respondent-spouses to show any reversible error in the decisions of the three courts below. Our Resolution became final and executory on January 29, 1998 and was entered in the Book of Entries of Judgments.[12] Meanwhile, on October 11, 1993, during the pendency of the appeal with the RTC, respondent-spouses filed against petitioner, as represented by his attorney-in-fact Zosimo S. Zareno, the heirs of Blas F. Rayos, the spouses Delfin and Gloria Alog, and Hon. Judge George M. Mejia, as Presiding Judge of the Metropolitan Trial Court, Branch 1 of Dagupan City, also before the RTC of Dagupan City, a complaint[13] for declaration of nullity of deed of sale, transactions, documents and titles with a prayer for preliminary injunction and damages. The complaint was docketed as Civil Case No. D-10772 and was raffled to Branch 42. The complaint alleged, inter alia, that respondent Maxima is a co-owner of a parcel of land originally covered by TCT No. 7316 of the Registry of Deeds of Dagupan City, her share having an area of 435.75 square meters. Sometime prior to April 13, 1955, respondent Felix, then an employee of the defunct Dagupan Colleges (now University of Pangasinan) failed to account for the amount of P3,000.00. It was agreed that respondent Felix would pay the said amount by installment to the Dagupan Colleges. Pursuant to that agreement, Blas F. Rayos and Amado Ll. Ayson, then both occupying high positions in the said institution, required respondent-spouses to sign, without explaining to them, a Deed of Absolute Sale on April 13, 1955 over respondent Maxima's real property under threat that respondent Felix would be incarcerated for misappropriation if they refused to do so. The complaint further alleged that later, respondent-spouses, true to their promise to reimburse the defalcated amount, took pains to pay their obligation in installments regularly deducted from the salaries received by respondent Felix from Dagupan Colleges; that the payments totaled P5,791.69; that notwithstanding the full payment of the obligation, Amado Ll. Ayson and Blas F. Rayos did nothing to cancel the purported Deed of Absolute Sale; and that they were shocked when they received a copy of the complaint for ejectment filed by petitioner. During the pre-trial, the following was established [T] he land in question was a portion of a larger lot covered by TCT No. 41021 with an area of 1,743 square meters in the name of Buenaventura Marias, father of the plaintiff (respondent) Maxima Marias-Paragas. Transfer Certificate of Title No. 41021 was later on cancelled and replaced by TCT No. 7316 in the names of Maxima Marias, Rufino Marias, Rizalina Marias and Buenaventura Marias, specifying that each would receive one-fourth (1/4) thereof. The portion pertaining to Maxima Marias-Paragas was later on allegedly conveyed to Blas F. Rayos and Amado Ll. Ayson by virtue of a Deed of Sale allegedly executed on April 13, 1955 by Maxima Marias-Paragas with the conformity of her husband Felix Paragas, after which TCT 7354 was issued canceling TCT No. 7316. Under TCT No. 7354, the new owners were Blas F. Rayos and Amado Ll. Ayson, Rufino Marias, Rizalina Marias and Angela Marias. The land was subdivided later on into four (4) lots, distributed as follows: Lot A went to Blas F. Rayos and Amado Ll. Ayson, Lot B to Rufino Marias, Lot C to Rizalina Marias, and Lot D to Angela Marias. Each lot has an area of 435.75 square meters. For Lot A, TCT No. 22697 was issued in the name of both Blas F. Rayos and Amado Ll. Ayson. On November 15, 1991, Lot A was the subject of a subdivision between Amado Ll. Ayson and Blas F. Rayos. Said subdivision was approved on December 10, 1991, dividing the property into equal halves, each half with an area of 217.88 square meters. Thereafter, the one-half (1/2) pertaining to Blas F. Rayos was sold by his successors-in-interest to spouses Delfin and Gloria Alog by virtue of an Extra-Judicial Settlement With Sale dated January 10, 1992, to which the said spouses were issued TCT 57683 on January 14, 1992. On the same day, Amado Ll. Ayson for his portion of the property was also issued TCT 57684. Amado Ll. Ayson later passed on ownership of his share to Amado Z. Ayson and issued to the latter was TCT 59036 after the latter executed an Affidavit of Self Adjudication dated August 3, 1992 upon the death of Amado Ll. Ayson.[14] After trial on the merits, the RTC, Branch 42, Dagupan City rendered its Decision[15] dated March 6, 1998 in favor of respondent-spouses declaring the Deed of Absolute Sale as an equitable mortgage, the decretal portion of which reads WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, except the spouses Delfin and Gloria Alog:

Annulling the Deed of Sale executed by Felix Paragas and Maxima Paragas on April 13, 1955 (Exh. 3) in favor of defendants Blas F. Rayos and Amado Ll. Ayson except as it affects the interest of Spouses Delfin and Gloria Alog over the property in question; Annulling likewise TCT No. 57684 issued to Amado Ll. Ayson and TCT No. 59036 issued to Amado Z. Ayson, including the respective tax declarations thereof; Ordering Amado Z. Ayson to reconvey ownership of the property covered by TCT No. 59036 to the herein plaintiffs, the true owners thereof; Ordering defendant Amado Z. Ayson and the estate of Blas F. Rayos to pay jointly and severally to the herein plaintiffs the amount paid by Spouses Delfin and Gloria Alog to the late Blas F. Rayos, there being no proof adduced by the plaintiffs as to the actual current market value of the said property; Ordering the said defendants Amado Z. Ayson and the estate of Blas F. Rayos to pay jointly and severally to the plaintiffs other amounts of P50,000.00 as moral damages and P10,000.00 as attorney's fees, including appearance fee; Further ordering the aforementioned defendants, except defendant-spouses Delfin and Gloria Alog, to pay costs. SO ORDERED.[16] Petitioner appealed the said Decision to the Court of Appeals, which affirmed the same in its Decision dated May 31, 2000. The motion for reconsideration filed by petitioner was likewise denied by the Court of Appeals in its Resolution dated December 12, 2000. Hence, this petition raising the sole issue that The Honorable Court of Appeals has acted in excess of or with grave abuse of discretion amounting to lack of jurisdiction in dismissing the appeal of the herein petitioner Amado Z. Ayson, Jr. and in affirming the decision of the Regional Trial Court, Branch 42, Dagupan City in Civil Case No. D-10772, in violation of the laws on sale, equitable mortgage, prescription, laches and estoppel as well as the laws on property registration.[17] Petitioner contends that respondent-spouses are bound by the judicial admissions they made both in the ejectment case and in the case for declaration of nullity of the Deed of Absolute Sale. With respect to the ejectment case, he posits that respondent-spouses cannot renege on the effects of their admissions that petitioner is the registered owner of the disputed property; that they were occupying the same by mere tolerance of the latter without rent; and that they undertook to vacate the premises in accordance with the Affidavit dated April 8, 1992, especially when the findings of the MTCC had already become final upon the Entry of Judgment of our Resolution affirming the MTCC, the RTC, and the Court of Appeals. As regards the action for declaration of nullity of the deed of absolute sale, petitioner claims that respondent-spouses are likewise bound by their admission during the pre-trial that the series of certificates of title from the time the Deed of Absolute Sale was registered with the Register of Deeds of Dagupan City eventually led to the issuance of TCT No. 59036 in his name. Petitioner further argues that the action instituted before the RTC, Branch 42, Dagupan City has already prescribed. According to him, the complaint alleged that the Deed of Absolute Sale was executed through fraud, making the said contract merely voidable, and the action to annul voidable contracts based on fraud prescribed in four (4) years from the discovery of fraud. He insists that the registration of the Deed of Absolute Sale occurred on May 4, 1955, which operated as constructive notice of the fraud to the whole world, including respondent-spouses. Thus, petitioner concludes that the action had long prescribed when they filed the same on October 11, 1993, since its cause had accrued 38 years ago. Petitioner adds that respondent-spouses are bound by estoppel and guilty of laches in light of the judicial admissions they have already made and the unreasonable length of time that had lapsed before they questioned the validity of the Deed of Absolute Sale and the Affidavit they executed on April 8, 1992. He also asseverates that the Deed of Absolute Sale is a true sale and not an equitable mortgage, arguing that the alleged payments made by respondent Felix were made from December 29, 1965 to December 17, 1980, long after the execution of the contract on April 13, 1955; that respondent-spouses only paid realty taxes over their house and not on the disputed land; that their possession of the property was by his mere tolerance; that there was no evidence proffered that the amount of

P3,000.00 as consideration for the sale was unusually inadequate in 1955; and that the other co-owners of the land did not question or protest the subdivision thereof leading to the issuance of TCT No. 59036 in his name. Lastly, petitioner claims that he is a transferee in good faith, having had no notice of the infirmity affecting the title of his predecessor Amado Ll. Ayson over the property. He says that he was only exercising his right as an heir when he adjudicated unto himself the parcel of land pertaining to his adoptive father,[18] resulting in the issuance of TCT No. 59036 in his name, and, thus, should not be penalized for his exercise of a legal right. The arguments do not persuade. First. With respect to the admissions made by respondent-spouses, through their counsel during the preliminary conference of the ejectment case, it is worthy to note that, as early as the submission of position papers before the MTCC, they already questioned the sale of the subject property to Amado Ll. Ayson and Blas F. Rayos for being fictitious and asserted their ownership over the land, pointing to the fact that respondent Maxima had been living on the land since her birth in 1913 and that they had been in continuous possession thereof since her marriage to respondent Felix in 1944. However, unfortunately for them, the MTCC held them bound by the admissions made by their counsel and decided that petitioner had a better right to possess the property. Nevertheless, it must be remembered that in ejectment suits the issue to be resolved is merely the physical possession over the property, i.e., possession de facto and not possession de jure, independent of any claim of ownership set forth by the party-litigants.[19] Should the defendant in an ejectment case raise the defense of ownership in his pleadings and the question of possession cannot be resolved without deciding the issue of ownership, the issue of ownership shall be resolved only to determine the issue of possession.[20] The judgment rendered in such an action shall be conclusive only with respect to physical possession and shall in no wise bind the title to the realty or constitute a binding and conclusive adjudication of the merits on the issue of ownership. Therefore, such judgment shall not bar an action between the same parties respecting the title or ownership over the property,[21] which action was precisely resorted to by respondent-spouses in this case. Anent the claim that respondent-spouses admitted the series of TCTs issued by reason of the registration of the questioned Deed of Absolute Sale, suffice it to state that records show that they admitted only the existence thereof, not necessarily the validity of their issuance. Second. The Deed of Absolute Sale is, in reality, an equitable mortgage or a contract of loan secured by a mortgage. The Civil Code enumerates the cases in which a contract, purporting to be a sale, is considered only as a contract of loan secured by a mortgage, viz.: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of the sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In this case, the evidence before the RTC, Branch 42, Dagupan City had established that the possession of the subject property remained with respondent-spouses despite the execution of the Deed of Absolute Sale on April 13, 1955. In fact, testimonies during the trial showed that petitioner and his predecessors never disturbed the possession of respondentspouses until the filing of the ejectment case on April 12, 1992.[24] Moreover, the evidence presented by respondent-spouses indubitably reveals that they signed the contract under threat of prosecution, with the view to secure the payment of the P3,000.00 defalcated by respondent Felix. Amado Ll. Ayson and Blas F. Rayos obviously exerted undue influence on Felix taking advantage of the latter's lack of education and understanding of the legal effects of his signing the deed. Respondent-spouses have clearly proven that they have already paid the aforesaid amount. That the obligation was paid in installments through salary deduction over a period of 10 years from the signing of the Deed of Absolute Sale is of no moment. It is safe to assume that this repayment scheme was in the nature of an easy payment plan based on the respondent-spouses' capacity to pay. Also noteworthy is that the deductions from respondent Felix's salary amounted to a total of P5,791.69,[25] or almost double the obligation of P3,000.00. Furthermore, it cannot be denied that petitioner failed to adduce countervailing proof that the payments, as evidenced by the volume of receipts, were for some other obligation. That the realty taxes paid by respondent-spouses was only for their house can be explained by the fact that, until the filing of the ejectment case, respondent Maxima was not aware that the land she co-owned was already partitioned, such that the payments of real estate taxes in her name were limited to the improvement on the land. An equitable mortgage is a voidable contract. As such, it may be annulled within four (4) years from the time the cause of action accrues. This case, however, not only involves a contract resulting from fraud, but covers a transaction ridden with threat, intimidation, and continuing undue influence which started when petitioner's adoptive father Amado Ll. Ayson and Blas F. Rayos, Felix's superiors at Dagupan Colleges, practically bullied respondent-spouses into signing the Deed of Absolute Sale under threat of incarceration. Thus, the four-year period should start from the time the defect in the consent ceases.[26] While at first glance, it would seem that the defect in the consent of respondent-spouses ceased either from the payment of the obligation through salary deduction or from the death of Amado Ll. Ayson and Blas F. Rayos, it is apparent that such defect of consent never ceased up to the time of the signing of the Affidavit on April 8, 1992 when Zareno, acting on behalf of petitioner, caused respondent Felix to be brought to him, and taking advantage of the latter being unlettered, unduly influenced Felix into executing the said Affidavit for a fee of P10,000.00.[27] The complaint praying for the nullity of the Deed of Absolute Sale was filed on October 11, 1993, well within the four-year prescriptive period. Regarding the finality of the adjudication of physical possession in favor of petitioner, it may be reiterated that the right of possession is a necessary incident of ownership. This adjudication of ownership of the property to respondent-spouses must include the delivery of possession to them since petitioner has not shown a superior right to retain possession of the land independently of his claim of ownership which is herein rejected. Verily, to grant execution of the judgment in the ejectment case would work an injustice on respondent-spouses who had been conclusively declared the owners and thus, rightful possessors of the disputed land.[28] WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in CA-G.R. CV No. 59645 dated May 31, 2000 is AFFIRMED. SO ORDERED. Ynares-Santiago, (Chairperson), Austria-Martinez, Chico-Nazario, and Reyes, JJ., concur.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.[22] Art. 1604. The provisions of article 1602 shall also apply to a contract purporting to be an absolute sale. In such cases, parol evidence then becomes competent and admissible to prove that the instrument was in truth and in fact given merely as a security for the repayment of a loan; and upon adequate proof of the truth of such allegations, the courts will enforce the agreement or understanding in this regard, in accord with the true intent of the parties at the time the contract was executed, even if the conveyance was accompanied by registration in the name of the transferee and the issuance of a new certificate of title in his name.[23]